Nominal vs. real interest rate

The difference between nominal and real interest is crucial to the question of whether your money REALLY becomes worth more.

Definition:

• Nominal interest rate: the stated interest rate (e.g. 3.0% on an overnight money account)
• Real interest rate: nominal rate − inflation rate = actual increase in purchasing power
• Formula (Fisher equation): real interest ≈ nominal interest − inflation

Current example (2025):

• Overnight money: 3.0% nominal
• Inflation: ~2.3%
• Real interest: +0.7% – your money grows only minimally in real terms

Negative historical examples (Germany):

• 2021: overnight money 0.01%, inflation 3.1% → real interest: −3.1%
• 2022: overnight money 0.5%, inflation 6.9% → real interest: −6.4%
• 2023: overnight money 3.5%, inflation 5.9% → real interest: −2.4%
• Your savings book LOST PURCHASING POWER in these years – despite interest!

Why real interest is the only one that counts:

€10,000 in an account at 3% interest over 10 years with 2.5% inflation:
• Nominal final value: €13,439 (+34%)
• Real purchasing power: €10,496 (+5%) – in real terms you hardly have more

For different asset classes:

• Overnight money: often negative or barely positive in real terms
• Shares (MSCI World): ~7% nominal − 2% inflation = ~5% real
• Property: ~3% rental yield + 2% appreciation − 2% inflation = ~3% real
• Gold: historically roughly offsets inflation (real ~0%)