Definition
- Nominal interest rate
- The nominal interest rate is the rate actually charged on a loan or paid on a deposit, made up of the real rate plus expected inflation.
- Not to be confused with: Real interest rate
- The real interest rate is the nominal interest rate minus the rate of inflation, so it measures the gain in buying power from lending.
Test yourself
What is the difference between nominal interest rate and real interest rate?
The nominal rate is the one a bank quotes; the real rate is what the lender gains once rising prices are taken out.