What is Internal rate of return (IRR)?

The internal rate of return (IRR) is like the secret recipe that tells you how fast your money grows when you save or invest it.

Imagine you have a piggy bank. Every year, you put some coins in it, and after a few years, you take out more coins than you put in, because it grew! The internal rate of return is like the special growth speed that makes this happen.

Think of your money as seeds in a garden. If you plant them well, they grow into big plants that give you fruits (which are like extra coins). The IRR tells you how fast those seeds grow, whether it’s a little sprout or a full-grown tree.

For example, if you put $10 in the bank and after 2 years you have $15, your money grew by $5. The IRR helps you figure out that growth rate, like knowing how many inches your plant grows each day.

The higher the IRR, the faster your money grows, just like a sunflower that grows taller every day! If you know the IRR of different piggy banks or investments, you can choose the one that makes your money grow the fastest.