A nominal return is what an account statement shows. A real return is what that growth is actually worth in today’s purchasing power, once inflation is backed out.
How it works
The exact relationship divides one plus the nominal return by one plus inflation, then subtracts one. A common shortcut — just subtracting inflation from the nominal return — is close at low rates, but drifts further from the exact answer as either rate rises, because it misses that inflation erodes the return itself, not only the original principal.
Why a positive nominal return can still be a real loss
When inflation outpaces the nominal return, purchasing power falls even though the account balance grew — the number on a statement went up while what it can actually buy went down.
How to use this calculator
- Enter the nominal return earned.
- Enter the inflation rate over the same period.
Frequently asked questions
Why isn’t nominal minus inflation good enough?
It’s a reasonable estimate at everyday rates but becomes a visibly worse approximation as either figure grows, since it ignores the compounding interaction between the two rates.
What inflation rate should I use?
A general measure like CPI for a broad estimate, though your personal inflation experience can differ meaningfully depending on what you actually spend money on.
Does this apply to a single year or a longer holding period?
Either — enter the nominal return and inflation rate for whatever period you’re measuring, and the real return will be for that same period.
