IRR stands for Internal Rate of Return. This is different to an interest rate. An Internal Rate of Return is a useful way of expressing potential returns on different types of investment. It can be particularly useful for comparing investments that pay back your capital and/or returns at different times.

The returns you make on any investment, bond or loan can be represented as an IRR. An IRR calculation takes into account the amount of money initially invested, the date and amount of payments returned over a period of time.

Your money today has a greater value than tomorrow, as you could be doing something else with it.

Importantly, the IRR takes into consideration not just how much you could get back on your investment, but also when you get it back.