What Is the Real Rate of Return?
The real rate of return is the return on an investment or savings after adjusting for inflation. It shows how much purchasing power actually grew. The nominal return is the headline figure; the real return subtracts the effect of rising prices.
Formula
Exact: real return = (1 + nominal return) ÷ (1 + inflation rate) − 1. A common approximation is nominal return − inflation rate.
Example
A 6% nominal return with 3% inflation gives a real return of about 2.9% (1.06 ÷ 1.03 − 1).
Negative Real Returns
If inflation is higher than the nominal return, the real return is negative: the balance grows in currency units but buys less.
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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.