Real interest rate

The "real interest rate" is approximately the nominal interest rate minus the inflation rate (see Fisher equation and below for exact equation). It is the rate of interest an investor expects to receive after subtracting inflation. This is not a single number, as different investors have different expectations of future inflation. If, for example, an investor were able to lock in a 5% interest rate for the coming year and anticipated a 2% rise in prices, he would expect to earn a real interest rate of 3%.

Since the inflation rate over the course of a loan is not known initially, volatility in inflation represents a risk to both the lender and the borrower.