What is a 'Real Rate Of Return'
A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time.
BREAKING DOWN 'Real Rate Of Return'
Adjusting the nominal return to compensate for factors such as inflation allows investors to determine how much of their nominal return is actually real return.
For example, let's say your bank pays you interest of 5% per year on the funds in your savings account. If the inflation rate is currently 3% per year, then the real return on your savings today would be 2%. In other words, even though the nominal rate of return on your savings is 5%, the real rate of return is only 2%, which means that the real value of your savings only increases by 2% during a oneyear period.

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 ... 
Nominal Rate Of Return
The amount of money generated by an investment before expenses ... 
AfterTax Real Rate Of Return
The actual financial benefit of an investment after accounting ... 
Nominal
An unadjusted rate, value or change in value. This type of measure ... 
InflationProtected Security  ...
A type of fixedincome investment that guarantees a real rate ...

Term
What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Economics
Understanding Interest Rates: Nominal, Real And Effective
Interest rates can be broken down into several subcategories that incorporate various factors such as inflation. Smart investors know to look beyond the nominal or coupon rate of a bond or loan ... 
Retirement
Inflation: Inflation And Investments
When it comes to inflation, the question on many investors' minds is: "How will it affect my investments?" This is an especially important issue for people living on a fixed income, such as retirees. ... 
Investing Basics
What Does Nominal Mean?
Nominal refers to an unadjusted value or change in value. 
Investing Basics
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. 
Professionals
Introduction
FINRA/NASAA Series 66: Section 2 Measuring Portfolio Returns. This section discusses different return measures: return on investment, holding period, annualized, risk free and total returns. 
Economics
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Professionals
Rates of Return
FINRA/NASAA Series 66 Section 1  Rates of Return. In this section internal rate of return (IRR), real return, expected return and riskadjusted return. 
Economics
Interest Rates: Nominal and Real
An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount. Interest rates are the primary yardstick for measuring how much return lenders will get. However, ... 
Professionals
Measuring Portfolio Returns
NASAA Series 65: Section 16 Measuring Portfolio Returns. In this section different types of risk measures discussed and some sample questions.

What is the difference between real and nominal interest rates?
Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... 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 >> 
If markets give information on value through price, how can nominal values be out ...
Learn more about nominal values, real values and how these two measurements differ. Explore the impact of inflation and deflation ... 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 >> 
How does the Fisher effect illustrate returns on bonds?
Learn how the Fisher effect shows the impact of expected future increases in inflation on the prices of bonds and their interest ... Read Answer >> 
What does it signify if there is a large discrepancy between a nation's real and ...
Discover the differences between real GDP and nominal GDP and what it means when there is a large discrepancy between the ... Read Answer >>