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real interest rate

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Financial Dictionary

Real Interest Rate

The amount by which the nominal interest rate is higher than the inflation rate.

Investopedia Commentary

The real rate of interest is approximated by taking the nominal interest rate and subtracting inflation. The real interest rate is the growth rate of purchasing power derived from an investment.

Related Links

All about Inflation Tutorial

See also: Inflation, Interest Rate, Nominal Interest Rate, Real Rate of Return, Return

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Financial Dictionary

real interest rate

The nominal current interest rate minus the rate of inflation. For example, an investor holding a 10% certificate of deposit during a period of 6% annual inflation would be earning a real interest rate of 4%. The real interest rate is a more valid measure of the desirability of an investment than the nominal rate is.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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