Real Interest Rate

Definition

The real interest rate is the nominal interest rate adjusted for inflation. It represents the purchasing power of borrowed or invested money after accounting for changes in prices over time.

Related terms

Nominal Interest Rate: The nominal interest rate is the stated or advertised interest rate without adjusting it for inflation.

Inflation Rate: The inflation rate measures how fast prices are rising over time.

Fisher Effect: This term describes how changes in expected inflation impact nominal and real interest rates.