What is the real interest rate?

The real interest rate measures the change in purchasing power by adjusting the nominal interest rate for inflation.

How do you calculate the real interest rate?

We use the exact Fisher equation: (1 + nominal) ÷ (1 + inflation) − 1, and also show the simple approximation: nominal − inflation.

Nominal rates ignore inflation. Real rates account for inflation, showing the true gain or loss in purchasing power.

Yes. We convert the entered rate and compounding frequency to an Annual Equivalent Rate (AER) before calculating the real rate.

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Inputs

Gross interest rate, %:

Inflation rate, %:

Compound frequency:

Method: