What Is a Real Interest Rate and Why Does It Matter?

A real interest rate is the interest rate after inflation: the nominal rate minus the rate at which prices are rising. It tells you how much buying power a bond or deposit adds, not just how many dollars.

The 10-year Treasury yielded 4.98% on October 29, 2026 and consumer prices were up 3.72% over the year to September, so the real rate is about 1.21%. The market's own measure, the 10-year inflation-protected (TIPS) yield, was 2.63%.

How do you calculate a real interest rate?

There are two versions. The quick one, called the Fisher approximation, is nominal rate minus inflation. The exact one divides: (1 + nominal) ÷ (1 + inflation) − 1.

The two agree closely when rates are low. They drift apart when inflation is high: at an illustrative 15% yield and 10% inflation, the quick answer is 5.00% and the exact answer is 4.55%. The currency pages on this site use the simple version. Inflation is the 12-month change in the Consumer Price Index (CPI), 336.3 in September 2026 against 324.2 a year earlier (FRED).

What is the TIPS yield, and how is it different?

The formula looks back: it uses inflation that has already happened. A Treasury Inflation-Protected Security (TIPS) pays a fixed real yield on top of whatever inflation turns out to be, so its yield is the market's real rate for the next ten years. It was 2.63% on October 29, 2026.

Subtract it from the ordinary 10-year yield and you get the breakeven rate, 4.98% − 2.63% = 2.35%: roughly the inflation rate that makes the two bonds pay the same. The market is pricing lower inflation than the 3.72% of the last 12 months. That is an approximation and a market view, not a forecast.

Why does the real interest rate matter?

Because it sets what safe money earns in buying power, and every other asset is measured against that.

• Stocks. A higher real yield raises the return you need from a stock and lowers what its future profits are worth today. See how interest rates affect stock prices and the risk-free rate. The real-yield comparison on the equity risk premium page puts stocks against the TIPS yield: +1.24 points.
• Gold. It pays nothing, so a higher real yield makes it costlier to hold. Monthly changes in gold and in the real yield had a correlation of -0.30 since 2003. See why gold rises when the dollar falls.
• Currencies. Money can chase a higher real return abroad. See what drives the dollar vs euro rate.
• Bonds. A fixed coupon loses value if inflation runs above what was expected, and a bond's real return is what actually matters at maturity.

Which countries pay a positive real rate today?

Policy rate minus the latest inflation, from the currency pages (policy rates as of October 15 to 20, 2026, inflation for August 2026 except Japan, July):

Each pair page, such as dollar vs pound, shows these two columns side by side, and all currency comparisons are on one index. A policy rate is a short rate, so it differs from the 10-year real yield above. A real rate also depends on which inflation figure you pick, so treat any one number as a range.

Real interest rate FAQ