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The Nominal Interest Rate refers to the rate of interest paid or received, on a loan or deposit, before adjustment for inflation.
This is in contrast with the real interest rate; or, for interest rates "as stated" without adjustment for the full effect of compounding that are also referred to as the nominal annual rate. So, Real Interest Rate = Nominal Interest Rate - expected inflation For example, if the rate of interest quoted on a deposit of money is 6%, and the rate of inflation expected during that term is 3%, then the nominal interest rate is said to be 6%, while the real interest rate is calculated as 3%. |
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