Editing Interest rate (section)

==Real versus nominal==
{{Main|Real versus nominal value (economics)}}
{{Further|Fisher equation}}
The [[nominal interest rate]] is the rate of interest with no adjustment for [[inflation]].

For example, suppose someone deposits $100 with a bank for one year, and they receive interest of $10 (before tax), so at the end of the year, their balance is $110 (before tax). In this case, regardless of the rate of inflation, the [[nominal interest rate]] is 10% ''per annum'' (before tax).

The [[real interest rate]] measures the growth in [[real versus nominal value (economics)|real value]] of the loan plus interest, taking [[inflation]] into account. The repayment of principal plus interest is measured in [[real versus nominal value (economics)|real terms]] compared against the [[buying power]] of the amount at the time it was borrowed, lent, deposited or invested.

If inflation is 10%, then the $110 in the account at the end of the year has the same purchasing power (that is, buys the same amount) as the $100 had a year ago. The [[real interest rate]] is zero in this case.

The real interest rate is given by the [[Fisher equation]]:
: <math>r = \frac{1+i}{1+p}-1\,\!</math>
where ''p'' is the inflation rate.
For low rates and short periods, the [[linear approximation]] applies:
: <math>r \approx i-p\,\!</math>

The Fisher equation applies both ''[[ex ante]]'' and ''[[ex post]]''. ''Ex ante'', the rates are projected rates, whereas ''ex post'', the rates are historical.