1. What is Real Interest Rate?

The real interest rate is the nominal interest rate minus the inflation rate. It represents the true cost of funds to the borrower and the real yield to the lender, accounting for the erosion of purchasing power due to inflation.

2. How Does the Calculator Work?

The calculator uses the Fisher equation simplified form:

Where:

• Nominal Interest Rate — The stated interest rate on a loan or investment
• Inflation Rate — The rate at which general price levels are rising

Explanation: This simple formula shows how much purchasing power your money will actually gain or lose after accounting for inflation.

3. Importance of Real Interest Rate

Details: Real interest rates are crucial for economic decisions. They help investors understand true returns, guide central bank policies, and influence borrowing and spending decisions throughout the economy.

4. Using the Calculator

Tips: Enter the nominal interest rate and inflation rate as percentages. Both values should be positive numbers representing annual rates.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between nominal and real rates?
A: Nominal rates don't account for inflation, while real rates show the actual increase in purchasing power.

Q2: Can real interest rates be negative?
A: Yes, when inflation exceeds nominal rates. This means money loses purchasing power over time.

Q3: Why do economists focus on real rates?
A: Real rates better reflect true economic conditions and incentives for borrowing/lending.

Q4: How often should I calculate real rates?
A: Regularly, especially when making long-term financial decisions or comparing investments.

Q5: Does this work for all countries?
A: Yes, but be sure to use inflation and interest rates from the same country/currency.