A measure of interest rate that adjusts for inflation in an economy. It reflects real costs/ real yields in a market. It represents the rate of interest an investor, saver or lender receives for an investment, savings account, or a loan after allowing for inflation. More specifically, this rate captures the true cost of borrowing or the true return on investment, adjusted for the effect of inflation.

According to Fisher equation, the real interest rate is equal approximately to the nominal interest rate minus the inflation rate. A nominal interest rate is the real interest rate plus a projected rate of inflation.

Real interest rate may be positive or negative. It will be negative when inflation exceeds the nominal rate of inflation. A positive rate signals the percentage increase in purchasing power a lender receives when a borrower repays the loan with interest.