Real Interest Rate
Subtracting inflation from the nominal rate is only an approximation; dividing the two gross factors is exact. The simple subtraction is shown below.
Your numbers
Real rate
0.98%
Difference
1%
What it means
After inflation you still gain 0.98% a year.
Formula
Real rate = ((1 + Nominal rate/100) ÷ (1 + Inflation/100) − 1) × 100
A 3.5% deposit with 3.5% inflation gains you almost nothing — and after interest tax it turns negative.
What to enter
| Input | Default | Accepted range |
|---|---|---|
| Nominal rate (%)The quoted rate, before compounding is taken into account. | 3.5 | No limit |
| Inflation (%)How fast prices rise each year. | 2.5 | No limit |
Step by step
Quick reference table
Results when only Nominal rate (%) changes and everything else stays put.
| Nominal rate (%) | Real rate (%) | Difference (%) |
|---|---|---|
| 1.75 | -0.73 | -0.75 |
| 2.63 | 0.13 | 0.13 |
| 3.5 | 0.98 | 1 |
| 5.25 | 2.68 | 2.75 |
| 7 | 4.39 | 4.5 |
What each result means
| Result | At default values |
|---|---|
| Real rate (%)The rate after inflation is removed — purchasing power. | 0.98 |
| Difference (%)The gap between two values — a quantity, not a rate. | 1 |
Common mistakes
A 3.5% deposit with 3.5% inflation gains you almost nothing — and after interest tax it turns negative.
Glossary
- Nominal rate
- The quoted rate, before compounding is taken into account.
- Inflation
- How fast prices rise each year.
- Real rate
- The rate after inflation is removed — purchasing power.
- Difference
- The gap between two values — a quantity, not a rate.
Frequently asked questions
Q. How is Real Interest Rate calculated?
Real rate = ((1 + Nominal rate/100) ÷ (1 + Inflation/100) − 1) × 100 — Subtracting inflation from the nominal rate is only an approximation; dividing the two gross factors is exact. The simple subtraction is shown below.
Q. Can you walk through an example?
With Nominal rate 3.5%, Inflation 2.5%, the answer is Real rate 0.98%.
Q. What do I need to enter?
Enter Nominal rate, Inflation. The result recalculates as you type, and an empty box counts as zero.
Q. How much does the answer move if I change a number?
Changing only Nominal rate (%) moves the answer to Nominal rate (%) 1.75 → Real rate (%) -0.73 and Nominal rate (%) 7 → Real rate (%) 4.39. The table below lays out five steps.
Q. How are the numbers rounded?
Money is shown to the nearest whole unit, percentages to one decimal place and everything else to two. What you see is rounded; the calculation itself carries the unrounded value forward.
Q. Anything to watch out for?
A 3.5% deposit with 3.5% inflation gains you almost nothing — and after interest tax it turns negative.
Related calculators
Tax rates and interest conventions differ by country and product — check your contract for real transactions.