Real interest rates can indeed be negative. When real interest rates are negative, it means that the inflation rate is larger than the nominal interest rate. Measuring the real interest rate lets investors determine if they are actually making money and growing purchasing power on an investment. If the real interest rate is not larger than inflation, the investor is losing money. Likewise, lenders can gauge if they are making money on loans they write by measuring the real interest rate. Unless the lender charges a rate above the inflation rate, it does not make money on the loan.
As of July 2016, U.S. real interest rates on the 10year Treasury fell below 0 for the first time since 2012. Treasurybills (Tbills) are shortterm obligations issued by the U.S. government with terms of four weeks, 13 weeks or 26 weeks. Given an average longterm inflation rate in the United States of 1.5 to 2%, whenever the Tbill rate drops below 1.5%, the real interest rate is negative.
How to Calculate Real Interest Rates
Economist Irving Fisher created an economic theory, now known as the Fisher effect, which identifies the relationship between real interest rates, nominal interest rates and the inflation rate. Basically, the real interest rate and the inflation rate combined equal the nominal interest rate. Because of this relationship, if nominal rates stay static, the real interest rate increases as inflation decreases, and the real interest rate decreases as inflation increases.
In practice, there are two methods to compute the real interest rate using Fisher's idea. The first is a linear approximation. The second is the more precise version that geometrically links the interest rates together. With the linear approximation, the inflation rate plus the real interest rate equals the nominal interest rate, as discussed above. Thus, the real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. For example:
Nominal interest rate = 12%
Inflation rate = 4%
Real interest rate = 12%  4% = 8%
The more precise version of the formula geometrically links the interest rates together as follows:
n = (1 + i) x (1 + r)  1
Nominal interest rate = n
Inflation rate = i
Real interest rate = r
Rearranging this formula to solve for the real interest rate looks like this:
r = (1 + n) / (1 + i)  1
Using the numbers from the above example, the more accurate value of the real interest rate is:
r = (1 + 12%) / (1 + 4%)  1 = 7.69%
Fisher's equation is important in monetary policy because it shows that, if a central bank's actions increase inflation by a certain number of percentage points, the nominal rates rise in tandem.

How is the Macaulay duration related to fixed income markets?
Determine how monetary policy influences the Fisher effect. The Fisher effect is used to determine real interest rates which ... Read Answer >> 
How do nominal interest rates in finance differ from the nominal rate of interest ...
Read about the subtle difference between a financial instrument's nominal interest rate of return and the general nominal ... Read Answer >> 
How were nominal interest rates in the economy set before the Federal Reserve?
Learn more about how nominal interest rates are determined, how the Federal Reserve targets them, and how they acted prior ... Read Answer >> 
Is the nominal value of a security ever also the real value?
Learn more about nominal values and real values. Find out how these market values change and if they may ever converge for ... Read Answer >> 
What is the rationale behind the effective interest rate?
Read about the reasons why market actors identify the effective interest rate as it pertains to investing, lending and accounting. Read Answer >>

Investing
Interest Rates Explained: Nominal, Real, Effective
Interest rates are divided into subcategories. Smart investors look beyond the nominal or coupon rate of a bond or loan to see if it fits their objectives. 
Investing
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Insights
The International Fisher Effect: An Introduction
The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates. 
Personal Finance
How Interest Rates Can Go Negative
Central banks from Europe to Japan have implemented a negative interest rate policy (NIRP) in order to stimulate economic growth. 
Investing
What Does Nominal Mean?
Nominal refers to an unadjusted value or change in value. 
Insights
The Taylor Rule: An Economic Model For Monetary Policy
This interest rate forecasting model has helped central banks around the world adjust their rates to balance out inflation. 
Investing
What is a Nominal Value?
The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. 
Investing
How Do Interest Rates Affect the Stock Market?
Interest rates can have a complicated ripple effect through financial markets. Here's what you need to know. 
Insights
Examples Of Negative Interest Rates
Negative interest rates seem like an abstract notion. But, they have practical consequences for an economy and are present all around us.

Fisher Effect
An economic theory proposed by economist Irving Fisher that describes ... 
Real Interest Rate
An interest rate that has been adjusted to remove the effects ... 
Nominal Interest Rate
The interest rate before taking inflation into account. The equation ... 
InflationProtected Security  IPS
A type of fixedincome investment that guarantees a real rate ... 
Real Economic Growth Rate
A measure of economic growth from one period to another expressed ... 
Nominal Value
The stated value of an issued security. Nominal value in economics ...