Real Interest Rate Calculator
The real rate of return after inflation — using the exact Fisher relation rather than the approximation, which matters once inflation is high.
The approximation is real ≈ nominal − inflation, and it is fine for small numbers.
How the real interest rate calculator works
The approximation is real ≈ nominal − inflation, and it is fine for small numbers. The exact Fisher equation is (1 + nominal)/(1 + inflation) − 1, and the two diverge as rates rise.
At 5% nominal and 3% inflation the approximation says 2.00% and the exact answer is 1.94% — a difference of nothing much. At 40% and 30% the approximation says 10% and the truth is 7.7%.
Formula: real = (1 + nominal)/(1 + inflation) − 1
Worked examples
| Inputs | Real rate of return | Note |
|---|---|---|
| 5% return, 3% inflation | 1.9417% | 1.94% real, not the 2% the approximation suggests |
| Losing to inflation | -2.8571% | negative real return |
| High inflation | 7.6923% | the approximation is out by 2.3 points |
FAQFrequently asked questions
What is the real interest rate?
The return after inflation — what your money actually buys more of.
Why not just subtract?
For small rates the difference is negligible. At 5% and 3% subtraction is out by 0.06 points; at 40% and 30% it is out by 2.3.
What is the Fisher equation?
(1 + nominal) = (1 + real)(1 + inflation). Rearranged, it gives the exact real rate.
Can the real rate be negative?
Yes, and it often is on cash deposits. Holding money in a low-rate account during high inflation is a guaranteed loss of purchasing power.
Which inflation figure should I use?
The one that reflects your own spending. Headline CPI is an average across a basket that may look nothing like yours.
Where these figures come from
- CFA Institute — Quantitative Methods: The Time Value of Money — the discounting, annuity and IRR conventions used here
- US Federal Reserve — Regulation Z (Truth in Lending), APR calculation — why APR includes fees where a nominal rate does not
- ASIC MoneySmart — the Australian regulator's own consumer calculators
Last checked: September 2026. These are the standard textbook formulas; the conventions named are those of the CFA Institute curriculum and ISO 80000 usage.