Makro, inflace a sazby
Real vs. Nominal Interest Rates: Why the Difference Matters
Key takeaways
- The nominal rate is the visible figure on a savings account or bond. The real rate subtracts inflation.
- A negative real rate means your money is losing purchasing power in real terms, even when it nominally "earns" interest.
- Central banks set nominal rates, but it is real rates that drive the economy.
- Inflation-linked bonds (TIPS or their European equivalents) offer a guaranteed real rate.
- For long-term equity investors, real returns are the key measure of success.
The nominal interest rate is the number you see at the bank. The real rate is what remains after subtracting inflation — the genuine impact on your purchasing power.
The Fisher Equation
The relationship is described by a simple formula: real rate ≈ nominal rate − inflation. If a savings account offers a nominal return and inflation is higher, the real rate is negative — money in the account is losing real value even though it nominally "grows".
Negative real rates are actually fairly common historically, especially during periods when central banks are stimulating the economy with low rates or when inflation temporarily spikes.
Why Central Banks Care
Central banks directly set nominal (base) rates. But the actual stimulative or restrictive effect on the economy is determined by real rates — rates relative to inflation. A high nominal rate amid high inflation can still amount to accommodative policy in practice.
Inflation-Linked Bonds
There are bonds whose principal is indexed to inflation. In the US these are TIPS (Treasury Inflation-Protected Securities); European countries offer similar instruments. They guarantee a positive real rate — but investors typically pay for that certainty with a lower nominal coupon.
What This Means for Investors
- Track the real returns of your portfolio, not just the nominal figures.
- In a high-inflation environment, even a savings account with a "decent" rate may not be enough.
- Equities have historically offered real returns above inflation — which is why they play a central role in long-term portfolios.
- Inflation-linked bonds are a complement, not a substitute for the equity allocation.
More on inflation as macro context can be found in the article inflation expectations and how markets price them. Historical equity performance is covered in what is the S&P 500.
FAQ
What is the difference between the real and nominal rate?
The nominal rate is the figure visible at the bank or on a bond. The real rate subtracts inflation and shows the true increase in purchasing power. A negative real rate means you are losing money in real terms.
What are TIPS?
TIPS are US government bonds protected against inflation — their principal grows with the consumer price index. They guarantee a positive real rate. European equivalents exist from various sovereign issuers.
Why do negative real rates harm savers?
A saver with money in an account nominally earns interest but loses real purchasing power — the same money buys less goods next year. This is a strong argument for investing a portion of savings in assets that offer real returns.