Real Rate of Return Calculator
Strip inflation out of a nominal return to get the real return that actually grows purchasing power.
About Real Rate of Return Calculator
The exact Fisher relation divides the growth factors rather than subtracting the rates. Subtraction is a decent approximation at low rates but drifts noticeably once inflation is above a few per cent. Only the real return compounds your standard of living; a 8% nominal return with 3% inflation grows purchasing power at 4.85%, not 5%.
Formula
Real Rate of Return
Real return = (1 + nominal) ÷ (1 + inflation) − 1
- real return
- Return after inflation, the only one that buys more goods
- nominal return
- Headline return before inflation
Worked example
With the default values below, Real Rate of Return Calculator returns Real Rate of Return of 4.854%. Change any input above and every figure here is recalculated in your browser.
Inputs used
- Nominal annual returnaccepts -50–100 %
- 8 %
- Inflation rateaccepts -10–100 %
- 3 %
- Holding periodaccepts 1–60 years
- 10 years
- Starting amountminimum 0
- 50,000
Results
- Real Rate of Return
- 4.854%
- Simple Approximation (Nominal − Inflation)
- 5.000%
- Real Value After the Period
- $80,322.15
- Nominal Value After the Period
- $107,946.25
- Purchasing Power Lost to Inflation
- $27,624.10
Step by step
- 1Values used
- 2Real Rate of Return
- 3Real Rate of Return= 4.854
- 4Simple Approximation (Nominal − Inflation)= 5.000
- 5Real Value After the Period= 80,322.15
- 6Nominal Value After the Period= 107,946.25
- 7Purchasing Power Lost to Inflation= 27,624.10
Assumptions and limits
- The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
- In particular, this calculator does not take tax or fees or charges into account.
- Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
- This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.
How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.
Frequently Asked Questions
How is Real Rate of Return calculated?
Real return = (1 + nominal) ÷ (1 + inflation) − 1 The exact Fisher relation divides the growth factors rather than subtracting the rates. Subtraction is a decent approximation at low rates but drifts noticeably once inflation is above a few per cent.
Why does Real Rate of Return matter?
Only the real return compounds your standard of living; a 8% nominal return with 3% inflation grows purchasing power at 4.85%, not 5%.
What values do I need to enter?
This calculator takes 4 inputs: Nominal annual return, Inflation rate, Holding period, Starting amount. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.