Real Interest Rate Calculator

What is Real Interest Rate?

The real interest rate is a crucial economic indicator that reflects the true return on investment or borrowing after accounting for inflation. It measures the purchasing power gained or lost from lending or borrowing money. For borrowers, the real interest rate determines the actual cost of borrowing money. If borrowing at a nominal interest rate of 8% while inflation is 3%, the real interest rate would be 5%. This means borrowers effectively pay 5% in real terms to access funds. Investors, on the other hand, use the real interest rate to evaluate potential returns on investments. If an investment yields a nominal return of 10% and inflation is at 3%, the real interest rate would be 7%. This signifies the actual increase in purchasing power gained from the investment.