Consumer prices rose 3.7% in the 12 months through September 2026, the Bureau of Labor Statistics (BLS) reports, while the FDIC puts the national average savings rate at 0.38%. A savings account paying that average has a real rate of about -3.3%, so at that pace the money in it buys about 3% less after a year.
A nominal interest rate is the rate on the account or loan itself, such as a savings account’s annual percentage yield (APY) or a credit card’s annual percentage rate (APR). It tells you how many dollars you’ll earn or owe, not what those dollars will buy. Deposit $1,000 at 4% APY, and a year later you have $1,040, whatever $1,040 buys by then.
Here, nominal means before inflation. In another sense, a nominal rate is one that leaves out compounding, the interest earned on interest, which is what separates an APR from an APY.
The real interest rate takes inflation out of the nominal rate, so it measures what your money can buy instead of how many dollars you have. If prices rise 3% in the year your $1,000 grows to $1,040, the $1,040 buys only about 1% more than the $1,000 did.
When the real rate is positive, savers gain buying power and borrowers pay for the use of the money. When it’s negative, savers lose buying power even as their balances grow, and what borrowers repay, interest included, buys less than what they borrowed.
The real rate you’ll end up with depends on inflation over the life of the account or loan, which no one knows in advance, so any real rate figured today is an estimate.
For a quick estimate, subtract the inflation rate from the nominal rate. A one-year certificate of deposit (CD) paying 4% when inflation runs 3% has a real rate of about 1%.
The exact formula divides instead, with each rate written as a decimal.
Real rate = (1 + nominal rate) ÷ (1 + inflation rate) − 1
For that CD, 1.04 ÷ 1.03 − 1 = 0.0097, a real rate of 0.97%. The quick version is close when rates are low, and the gap widens as they rise. A credit card charging 24% when inflation runs 3.7% has a real rate of 20.3% by subtraction and 19.6% by the exact formula.
The inflation figure to use depends on the decision. For one about today, such as whether your savings account is keeping up, use the 12-month change in the Consumer Price Index (CPI), the measure of consumer prices the BLS publishes each month. The October 2026 report has none, because the 2025 government shutdown kept the BLS from collecting October 2025 prices. So September’s 3.7% stays the latest figure until the November report comes out on December 10.
For a decision that runs for years, such as a five-year CD or a fixed-rate mortgage, use expected inflation, since what counts is inflation over the whole term. The Federal Reserve Bank of Cleveland estimates expected inflation for every horizon from one to 30 years, and its November 2026 update put the next 10 years at 2.67% a year.
Run the numbers on $10,000 for a year at 3.7% inflation. In a savings account paying 0.4%, close to the national average, it grows to $10,040, but what cost $10,000 at the start of the year costs $10,370 by the end, so your balance buys about 3% less.
Move that $10,000 to a high-yield savings account paying 4%, and it grows to $10,400, a real rate of about 0.3%, so it buys a little more after a year than it did at the start.
Taxes take a cut, since interest counts as taxable income. If your interest is taxed at 22%, the 4% account earns 3.12% after tax, a real rate of about -0.6%.
A negative real rate doesn’t make saving a mistake. Money for emergencies and for costs you expect within a few years has to be safe and on hand, so keep it where its rate is highest. Money you won’t need for a decade or more is better invested, since a negative real rate compounds year after year.
On a loan, the real rate is what borrowing costs you in buying power. A 30-year fixed-rate mortgage at 6% has a real rate of about 2.3% against the past year’s 3.7% inflation, and about 3.3% against the Cleveland Fed’s estimate of 2.67% a year over the next 10 years.
Inflation helps a fixed-rate borrower because the payment stays the same in dollars while prices rise, so each payment costs you less in buying power than the one before. A variable rate offers less of that help, since it moves with a benchmark rate, and benchmark rates tend to rise when inflation does.
Subtracting inflation never changes which of your debts costs the most, since the same figure comes off every rate. It shows how much each one costs you in buying power. A credit card at 24% still costs about 20% a year after inflation. A 3% fixed-rate mortgage has a real rate of about -0.7%, so inflation shrinks what you owe, in buying power, faster than interest adds to it.
Investment returns work the same way. A stock fund that gains 10% in a year when inflation runs 3.7% has a real return of about 6.3%, or 6.1% by the exact formula.
Treasury Inflation-Protected Securities (TIPS) and I bonds each pay a rate set up front plus an adjustment for inflation, so the set rate is a real rate, which on an I bond is called the fixed rate.
Compare an investment’s return with a savings or loan rate only on the same basis, both before inflation or both after. A 4% savings rate looks close to a stock return of 7% after inflation, but compared fairly, it’s 7% against the account’s real rate of about 0.3%.
Look up the CPI’s latest 12-month change on the BLS’s CPI page, updated each month, and subtract it from the rate on each account and debt you hold now.
For cash you’ll need within a few years, compare the best high-yield savings accounts.
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