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 ... 
AfterTax Real Rate Of Return
The actual financial benefit of an investment after accounting ... 
InflationProtected Security  ...
A type of fixedincome investment that guarantees a real rate ... 
Nominal Value
The stated value of an issued security. Nominal value in economics ... 
Inflationary Risk
The uncertainty over the future real value (after inflation) ...

Markets
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. 
Markets
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 ... 
Investing
What Does Nominal Mean?
Nominal refers to an unadjusted value or change in value. 
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. 
Markets
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Markets
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, ... 
Retirement
Retirement Planning: Why Real Rates of Return Matter Most
Here's how to plot your real rate of return, understand your "personal inflation rate" and safeguard your retirement funds against inflation. 
Managing Wealth
How To Measure Returns On The Series 65 Exam
An investor who is evaluating the performance of a portfolio manager must take into consideration the impact that any contributions or withdrawals made by the investor will have on the overall ... 
Markets
The International Fisher Effect: An Introduction
The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates. 
Markets
Corporate Bonds and the Impact of Inflation Risk
The impact of inflation risk affecting corporate bond returns can be significant. It may even result in a real loss of purchasing power.

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 >> 
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 >> 
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 is the rate of return I can expect on a savings account?
Find out what kind of return you can expect from the cash balance in your savings account and why interest rates have been ... Read Answer >> 
Under what circumstances is the nominal value out of line with the real value of ...
Learn more about nominal stock values and market values. Explore causes of differences between nominal and real values for ... 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 >>