What Is Real, Nominal And Negative Real Interest Rates- Definition And Concept

In this space, we will be discussing three very important banking terms that you might have read many times- Real Interest rate, Nominal Interest rate, and Negative Interest rate. Read this article to know more about it.

Banking awareness is an important section and questions from this section do comes in banking and insurance exams. There are infact certain exams, where the entire section is dedicated to this subject. Considering the interview as well, there is no way, one can deny the importance of this section because as a banking aspirant, you are expected to have some basic knowledge about the banking and financial terms. In this space we will discussing three very important banking terms that you might have read many a times- Real Interest rate, Nominal Interest rate and Negative Interest rate. We will discuss them in detail.

List Of Bank Holidays In Uttar Pradesh 2020

About Course:

"Did you Know? In this pack you will get All new content we launch in the next 1 months"

This is the most recommended and NRA-CET ready Pack!
Use Code 'DREAM' to avail at the best price today

This package Includes IBPS PO Study Material -  Subscribe Now

About Bank Mahapack
If you are preparing for more than 1 Banking & Insurance exams then this is the pack we recommend you buy.

It is most cost-effective and you get access to 100% digital content for Bank & Insurance exams on Adda247.

Banking & Insurance Exams Covered in this Pack

Additionally, you can crack any private bank job exam with content in this pack.


Bank & Insurance Mahapack Highlights 

  • Structured course content
  • Recorded classes available if you miss any live class
  • Previous Years’ Papers of all upcoming exams.
  • Full Length Mocks based on the latest pattern with detailed solutions (video solutions for certain topics)
  • Topic level knowledge tests
  • Strategy sessions, time management & Preparation tips from the experts


Validity: 1 Month

Bank Maha Pack
  1. Unlimited Live Classes & Recorded Video Courses
  2. Unlimited Tests and eBooks
  3. 1 Lakh+ Selections
  1. 15 Months
  2. 9 Months
  3. 3 Months
  4. 27 Months
  5. 1 Month
8899 593/month

List of Bank holidays in Delhi 2020

Difference between Real Interest, Nominal and Negative Interest Rate?

Given below are some of the basic difference between these three widely used terms.

Real Interest Rate Nominal Interest Rate Negative Interest Rate
When we consider the interest rate taking account of Inflation When we consider interest rate on its value without taking the account of inflation. When Inflation rate is higher than the interest rate.

What is Real Interest Rate?

Real Interest rate refers to an interest rate that takes account of inflation and thus is adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower or investors. It is also signifacnt to reflect the real value yield to the lender or to an investor. When we subtract the inflation rate from the Nominal rate then we get Real Interest rate. Let’s Understand this concept with the help of an example: If someone wants to buy a house and he/she takes loan from bank at 3% rate of interest and at that point of time the inflation rate is 2% so basically Bank is receiving 1% interest rate which is real Interest rate.

What Is IRDAI? IBPS RRB Exam Level : Is It Easy Or Hard To Crack? Most Asked Topics In IBPS RRB Clerk 2020 Exam- Based On Previous Year’s Paper

What is Nominal Interest Rate?

Nominal Interest Rate refers to the rate of interest when we don’t take account of inflation. We tends to take the interest rate on its face value. This can be better understand with the help of an example– Ram wants to deposit his money in a bank and hence he went in a near bank branch. He asked the bank to deposit his money. Now, he will receive certain interest on it and this interest rate will be known as Nominal Interest rate because we are not considering the Inflation. With time, the power of money also decreases or increases and when don’t take that in account and just consider the interest rate given to us then that Interest rate is known as Nominal Interest Rate. 

In other words, if you have 100 Rupees and you are getting 5% interest rate on it then at the end of the year you will have 105 in your account and this is Nominal Rate Interest.

What is Negative Real Interest Rate?

Negative Real Interest Rate refers to the interest when inflation rate is higher than the interest rate. For example- If you have 100 rupees and you were getting 5% interest on it and the inflation is 8% so at the end of the year you will have to pay 108 to buy something from the market while you have only gain 105 rupees. In other words, Negative Real Interest Rate= Inflation Rate- Interest Rate.

For more interesting and informative article, Stay tuned to bankersadda!

Click Here to Register for Bank Exams 2020 Preparation Material

Visit Achieversadda.com and participate in discussions with other aspirants and achievers. Get answers to your queries and connect with others on Achieversadda.com

SBI PO 2020 IBPS PO 2020 SBI Clerk 2020 IBPS Clerk 2020
RBI Grade B 2020 RBI Assistant 2020 LIC AAO & AE SEBI Grade A 2020