What is the real interest rate?

Answers

The interest rate is the cost of the credit or the return on savings. The interest rate may be nominal (agreed and paid) or real.
The interest rate is the cost of the credit or the return on savings. The interest rate may be nominal (agreed and paid) or real.
The real interest rate depends on the money buying power that usually decreases over time as prices rise as a result of inflation.
Debtors or depositors can determine the real interest rate for their loans and savings, lowering the money purchasing power from the nominal interest rate.
For example, for 1,000 $ one-year account, the nominal rate is 2.5%, which means that after one year the depositor will receive 1025 $. But if prices rise by 3% then the depositor will need $ 1030 for products that costed 1,000 $ a year ago.
Nominal rate-Inflation = Real interest rate
2.5% - 3% = - 0.5%