What is a 'Real Interest Rate'
A real interest rate is an interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or to an investor. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate:
Real Interest Rate = Nominal Interest Rate  Inflation (Expected or Actual)
BREAKING DOWN 'Real Interest Rate'
While the nominal interest rate is the interest rate officially assigned to the product or investment, the real interest rate is a reflection of the change in purchasing power derived from an investment based on shifts in the rate of inflation. The nominal interest rate is generally the one advertised by the institution backing the loan or investment. By adjusting the nominal interest rate to compensate for inflation, you are identifying the shift in purchasing power of a given level of capital constant over time.Expected Rate of Inflation
The anticipated rate of inflation is reported by the U.S. Federal Reserve to Congress regularly and includes estimates for a minimum threeyear period. Most anticipatory interest rates are reported as ranges instead of single point estimates. As the true rate of inflation may not be known until the time period corresponding with the holding time of the investment has passed, the associated real interest rates must be considered predictive, or anticipatory, in nature when the rates apply to time periods that have yet to pass.
Effect of Inflation Rates on the Purchasing Power of Investment Gains
In cases where inflation is positive, the real interest rate is lower than the advertised nominal interest rate. For example, if funds used to purchase a certificate of deposit (CD) are set to earn 4% in interest per year and the rate of inflation for the same time period is 3% per year, the real interest rate received on the investment is 4%  3% = 1%. The real value of the funds deposited in the CD will only increase by 1% per year, when purchasing power is taken into consideration.
If those funds were instead placed in a savings account with an interest rate of 1%, and the rate of inflation remained at 3%, the real value, or purchasing power, of the funds in savings will have actually decreased, as the real interest rate would be 2%, after accounting for inflation.

Nominal Rate Of Return
The amount of money generated by an investment before expenses ... 
Nominal Value
The stated value of an issued security. Nominal value in economics ... 
Real Economic Growth Rate
A measure of economic growth from one period to another expressed ... 
Inflationary Risk
The uncertainty over the future real value (after inflation) ... 
Real Value
Nominal value adjusted for inflation. Real value is obtained ... 
AfterTax Real Rate Of Return
The actual financial benefit of an investment after accounting ...

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. 
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. 
Insights
Inflation's Impact on Stock Returns
The evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods of low inflation. 
Investing
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.

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 >> 
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 >> 
Calculate the difference between nominal value and real value of stock shares
Explore the impact of real value and nominal value on stock trading. Find out how these values are assigned and what causes ... Read Answer >> 
What is inflation and how should it affect my investing?
Inflation, an economic concept, is an economywide sustained trend of increasing prices from one year to the next. The rate ... Read Answer >>