Real interest rate using Fisher equation
This online calculator calculates real interest rate from nominal interest rate with adjustment for inflation using Fisher equation
This page exists due to the efforts of the following people:
 | Timur
|
This content is licensed under Creative Commons Attribution/Share-Alike License 3.0 (Unported). That means you may freely redistribute or modify this content under the same license conditions and must attribute the original author by placing a hyperlink from your site to this work https://planetcalc.com/8554/. Also, please do not modify any references to the original work (if any) contained in this content.
When you receive the repayment of principal plus interest at the end of a year, interest is calculated using the nominal interest rate. However, if there is inflation, your money lost some buying power, compared against the buying power of the principal amount at the time it was deposited. So, if you want to get your real interest rate, you should take inflation into account. The relationship between nominal and real interest rates under inflation is given by the Fisher equation, named after Irving Fisher.
The Fisher equation is:
,
where
- nominal interest rate
- real interest rate
- inflation rate
Hence, the real interest rate would be
Note that for small rates (several percents) Fisher equation can be approximated as
Comments