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Economics

Real Rate (Real Interest Rate)

Quick fact

If the nominal interest rate is 6% and inflation is 4%, the real interest rate is approximately 2% – meaning your purchasing power grows by only 2% annually, not 6%.

Why this is interesting

You see a bank offering 5% interest on savings, but prices are rising 3% each year. Are you really earning 5%? The answer lies in the concept of the real rate.