1. What is Real Interest Rate?

The real interest rate is the rate of interest an investor expects to receive after allowing for inflation. It represents the true return on an investment by accounting for the eroding effect of inflation on purchasing power.

2. How Does the Calculator Work?

The calculator uses the Fisher equation:

Where:

• Nominal Rate — The stated interest rate (before inflation)
• Inflation Rate — The rate at which prices increase
• Real Rate — The actual purchasing power of your returns

Explanation: The formula shows that the real return is what remains after subtracting inflation from the nominal return.

3. Importance of Real Interest Rate

Details: Real interest rates are crucial for making informed investment decisions, comparing returns across different periods, and understanding the true cost of borrowing.

4. Using the Calculator

Tips: Enter the nominal interest rate and expected inflation rate as percentages. Both values can be positive or negative (for deflation).

5. Frequently Asked Questions (FAQ)

Q1: Can the real interest rate be negative?
A: Yes, when inflation exceeds the nominal rate, the real rate becomes negative, meaning your money loses purchasing power.

Q2: What's the difference between nominal and real rates?
A: Nominal rates don't account for inflation, while real rates show your actual increase in purchasing power.

Q3: How often should I calculate real rates?
A: Regularly, especially for long-term investments, as inflation can significantly impact returns over time.

Q4: Are there more precise formulas?
A: The exact Fisher equation is (1 + nominal) = (1 + real) × (1 + inflation), but the simple subtraction is often sufficient.

Q5: Where can I find inflation rate data?
A: Government statistics agencies typically publish inflation data (e.g., CPI in the US, HICP in Europe).