The real interest rate is the interest rate adjusted for the inflation rate.
If an investor expected a 7% interest rate with inflation at 2%, the real interest rate would be 5% (7% minus 2%).
Real Interest Rate = Nominal Interest Rate – Inflation Rate
If the nominal interest rate is 4.5% and the inflation rate is 1.2%, then:
Real Interest Rate = 4.5% – 1.2%
Real Interest Rate = 3.3%
- Wikipedia – Real Interest Rate – A basic overview of real interest rates.
- Russell Cooper and A. Andrew John – Theory and Applications of Macroeconomics – 16.14 – The Fisher Equation: Nominal and Real Interest Rates – An explanation of the Fisher Equation from a Macroeconomics textbook.
- The World Bank – Real Interest Rate % – Country data on current real interest rates around the world.
- Khan Academy – Macroeconomics – Investment and Real Interest Rates – An educational video from the Khan Academy describing real interest rates.
- Federal Reserve Bank of Cleveland – Productivity Growth and Real Interest Rates in the Long Run – An analysis of real interest rates over the long term.