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Real Interest Rate Calculator (Fisher Equation)

Find the inflation-adjusted real interest rate from a nominal rate and an inflation rate, using the exact Fisher equation, alongside the common quick-approximation shortcut.

Real interest rate (exact, Fisher equation)
4.8544%
Real interest rate (quick approximation)
5%
Approximation error
0.1456 percentage points

How it works

The Fisher equation relates nominal and real interest rates through inflation: (1 + nominal) = (1 + real) × (1 + inflation). Solved for the real rate, that's real = (1 + nominal) / (1 + inflation) − 1 — the exact rate of growth in purchasing power an investment or savings rate actually delivers once inflation is accounted for.

A widely used shortcut just subtracts: real ≈ nominal − inflation. That approximation drops the cross term nominal × inflation that the exact formula includes, so it's a close estimate at low rates but increasingly overstates the real rate as either rate grows — this calculator shows both figures side by side, plus the gap between them in percentage points.

Both rates are numbers you supply yourself — a rate you're being quoted, or an inflation figure from wherever you get your own economic data — not a live or hardcoded inflation statistic, since inflation changes over time and this site never invents time-sensitive facts.

FAQ

Why not just use the simple subtraction shortcut?

It's a fine estimate for small rates, but the gap grows with the size of the rates involved — at 8% nominal and 3% inflation the shortcut already overstates the real rate by about 0.15 percentage points, and the gap widens further at higher inflation or interest rate levels, such as periods of high inflation.

What does a negative real rate mean?

It means inflation is outpacing the nominal rate, so money invested at that nominal rate is losing purchasing power even though its nominal balance is growing — a common situation for cash sitting in a low-interest account during a period of higher inflation.

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