When inflation exceeds the interest rate, savers lose buying power – real rates were deeply negative in 2021–22. For borrowers, high inflation reduces the real cost of fixed-rate debt.
How to use the Real Interest Rate Calculator
- Nominal interest rate
- Inflation rate
- Tax rate on interest
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the nominal interest rate, inflation and your tax rate on interest.
Tips
- Use real (inflation-adjusted) figures to compare across years.
- Check whether data are seasonally adjusted.
- Use the same currency and base year throughout.
- Economic models simplify reality – treat results as illustrations, not forecasts.
Common mistakes to avoid
- Mixing nominal and real values.
- Comparing percentage changes with percentage-point changes.
- Treating correlations as causes.
Inputs explained
| Field | What to enter |
|---|---|
| Nominal interest rate | In % |
| Inflation rate | In % |
| Tax rate on interest | In % |
What each result means
- Real interest rate = ((1 + [Nominal interest rate]÷100)÷(1 + [Inflation rate]÷100) – 1)×100
- Approximation (nominal − inflation) = [Nominal interest rate] – [Inflation rate]
- Real after-tax rate = ((1 + [Nominal interest rate]÷100×(1 – [Tax rate on interest]÷100))÷(1 + [Inflation rate]÷100) – 1)×100
Example values
How the main result changes when Nominal interest rate changes and everything else stays at the example values above:
| Nominal interest rate (%) | Real interest rate (%) |
|---|---|
| 2.25 | -0.728 |
| 3.38 | 0.364 |
| 4.5 | 1.456 |
| 5.63 | 2.549 |
| 6.75 | 3.641 |
| 9 | 5.825 |
Formula
Real rate = (1 + nominal) ÷ (1 + inflation) − 1After-tax real rate = (1 + nominal × (1 − tax)) ÷ (1 + inflation) − 1Worked example
Inputs — Nominal interest rate: 4.5 %; Inflation rate: 3 %; Tax rate on interest: 22 %.
Results — Real interest rate = 1.456 %; Approximation (nominal − inflation) = 1.5 %; Real after-tax rate = 0.495 %.
Frequently asked questions
What is the real interest rate?
The interest rate after removing inflation.
Can the real interest rate be negative?
Yes – when inflation is higher than the nominal rate.
Why does the after-tax real rate matter?
Taxes apply to the nominal interest, reducing real returns further.
What formula does the Real Interest Rate Calculator use?
Real rate = (1 + nominal) ÷ (1 + inflation) − 1.