Definition
- 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.
- Not to be confused with: 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.
Test yourself
What is the difference between real interest rate and nominal 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.