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The remainder of interest after deducting inflation is known as the real interest rate.

The real interest rate can be positive or negative based on the prevailing rate of inflation. 

It is computed by Fisher Equation which states that the real interest rate is nominal interest minus inflation rate.

 When the inflation is higher than the nominal rate, the real rate of interest is negative. 

Alternatively, negative interest is when borrowers are being given an interest for borrowing money.

The negative rate of interest effectively reduces your purchasing power.

Unless the real interest is positive, it is not rational to postpone a purchase.

To earn a positive interest rate, one can explore inflation-indexed bonds.

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 Click here to read more about negative interest rate.

What is a negative interest rate?

When the actual rate of interest paid to a depositor is less than the rate of inflation, the real rate turns out to be ‘negative’.

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What is a negative interest rate?

When the actual rate of interest paid to a depositor is less than the rate of inflation, the real rate turns out to be ‘negative’.

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