Real Vs Nominal Rates

The rate your bank advertises is the nominal rate. To see what you actually earn, subtract inflation. What's left is the real interest rate — the number that truly matters.

If your savings pay 4% but inflation runs at 3%, your real return is just 1%. When inflation is high, real rates often turn negative, so money loses purchasing power even while it sits in the bank earning interest.

Borrowers love negative real rates because they repay loans with cheaper dollars. Savers hate them because wealth quietly erodes.