Create Date: October 17, 2024
Last Modified Date: December 3, 2024
Real interest rate can be calculated with the following variables:
Your result will be a single percentage representing the real interest rate after taking inflation into account. If the result is negative, it means inflation is outpacing the nominal interest rate, which could indicate lower real value returns for investors.
Using this tool to calculate the real interest rate is straightforward and fast. The steps involved include:
Let's say you are interested in checking what the real interest rate would be right now so you can make a decision with your finances. The nominal interest rate is 7% but the rate of inflation is currently 6%.
With this tool we can easily get that value by entering 7 into the nominal interest rate field and then 6 into the inflation rate field. We can hit calculate and get a real interest rate of 1%, opposed to the 7% nominal interest rate that we thought was most accurate.
Higher real interest rates are not necessarily good, as this means that borrowing money will be more expensive. For borrowers, lower real interest rates are generally better.
According to Investopedia, when real interest rate is negative, commercial banks are charged interest to keep cash with a nation's central bank rather than receiving interest, which can have a trickle-down effect on the economy.
Yes, real interest rate can indeed be zero if both nominal interest rate and inflation rate are the same. This means that the value of money remains constant, with no effective gain or loss in purchasing power.