Real Interest Rates
Definition of Real interest rate.
The Real interest rate is the nominal interest rate - inflation rate.
For example, if the Bank of England set base rates of 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1%
A higher real interest rate is good for savers and bad for borrowers.
Note, even if nominal interest rates were high e.g. 11%, savers would see a decline in their real value of money if inflation was 12%. This is why the real interest rate is important
Graph of Real Interest Rates
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