Real vs. Nominal Interest Rates

Thursday, August 21, 2008
John C. DeMoss, CFA

Just a quick note, because I may use this terminology in the future. I'd like to briefly state the difference between NOMINAL interest rates and REAL interest rates.  Nominal interest rates are the rates that you see quoted pretty much anywhere.  Real interest rates are nominal rates after adjusting for inflation.  Roughly, if a nominal rate is 6% and inflation is 4%, then you have a 2% real interest rate. (The number varies slightly based on the calculation, but you get the point.) 

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