The interest rate you earn on savings or pay on borrowing, adjusted for inflation. It shows the true return on your money after accounting for rising prices. Real interest rates are calculated by subtracting the inflation rate from the nominal interest rate.
If a savings account offers a 4% interest rate (nominal) but inflation is running at 3%, the real interest rate is 1%. This means your savings are actually growing by only 1% in purchasing power after accounting for rising prices.
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