Real Interest Rate Calculator

How to use the Real Interest Rate Calculator

1. 1Enter the nominal rate and the inflation rate.
2. 2Pick the units or options from the menus if the real interest rate tool offers them.
3. 3Read the real interest rate in the large result box.
4. 4Look at the extra rows for related figures.
5. 5Press Copy result to keep the answer.

When you need the real interest rate

Savers use it to see whether a deposit beats inflation. Borrowers and economists use it to compare loans over time and to see how costly credit really is.

When inflation is higher than the nominal rate, the real rate is negative, which means your money loses buying power even though the balance grows. The exact and approximate answers drift apart as the rates get larger.

How the real interest rate is worked out

Real rate = (1 + nominal) ÷ (1 + inflation) − 1. The quick estimate is nominal − inflation. Going the other way, nominal = (1 + real) × (1 + inflation) − 1. With a nominal rate of 8% and inflation of 3%, the real rate is 1.08 ÷ 1.03 − 1 = 4.85%. The quick estimate gives 5%, which is a bit high.

Every answer on this page comes from that one rule, so you can check any result by hand with a calculator. The figures shown underneath, such as other units, are conversions of the same answer.

• Exact Fisher equation
• Both directions
• Shows the quick estimate too

Mistakes to avoid with real interest rate

Use rates for the same period, such as both per year. Do not subtract tax or fees from one side only. If you want an after-tax real return, reduce the nominal rate by tax first.

On phone and computer

On a phone, type into the boxes one after another and read the real interest rate underneath; Copy result puts it on the clipboard for a message or a note. On a computer the inputs sit on the left and the answer on the right, so you can change one figure and watch the real interest rate move. The real interest rate calculator works the same on both.

Checking your real interest rate by hand

A good habit is to test the real interest rate calculator with a case you already know. With a nominal rate of 8% and inflation of 3%, the real rate is 1.08 ÷ 1.03 − 1 = 4.85%. The quick estimate gives 5%, which is a bit high.

If your own figures give a surprising answer, repeat the working yourself: Real rate = (1 + nominal) ÷ (1 + inflation) − 1. The quick estimate is nominal − inflation. Going the other way, nominal = (1 + real) × (1 + inflation) − 1. Small differences usually come from rounding, from mixing units, or from a typing slip in one of the inputs. Real returns depend on prices, so use inflation too. Look up prices with the Inflation Calculator, test growth with the Compound Interest Calculator, and value future money using the Present Value and NPV Calculator.

Features

• Match the periods of both rates
• Negative real rate loses buying power
• Subtracting is only a rough guide
• Clear messages when the real interest rate inputs make no sense
• Copy the result with one tap
• Private: nothing is uploaded

Frequently asked questions