Real Interest Rate Calculator
Calculate real interest rate accounting for inflation. Real Rate = (Nominal Rate - Inflation) / (1 + Inflation).
Formula
Real Rate = ((1 + Nominal) / (1 + Inflation) - 1) × 100
- Real rate = purchasing power after inflation
- Fisher equation: (1 + Real) = (1 + Nominal) / (1 + Inflation)
- Approximation: Real ≈ Nominal - Inflation (works for small rates)
- If Nominal < Inflation: Real rate is negative
Example
Inputs
- Nominal Interest Rate (%): 5
- Inflation Rate (%): 2
Nominal 5%, Inflation 2%: Real = (1.05/1.02 - 1) × 100 ≈ 2.94%
Frequently asked questions
Why does real rate matter?
It shows actual purchasing power growth. High nominal rate with high inflation may mean low real return.
Can real rate be negative?
Yes, if inflation exceeds nominal rate. Your money loses purchasing power despite earning interest.