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Real Rate of Return Calculator
A 7% return in a year of 3% inflation does not make you 7% richer. Enter your nominal return, the inflation rate and optionally a tax rate to get your true real return with the exact Fisher equation, the quick approximation, and the after-tax real return.
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How to use the Real Rate of Return Calculator
- Enter the nominal return, the percentage your investment or account actually earns.
- Enter the inflation rate for the same period.
- Optionally add your tax rate on the returns to see the after-tax result.
- Add an amount and years to see how it grows in nominal and in today's money.
- Read the real return, the growth in what your money can actually buy.
Real return formulas
- Exact (Fisher): r = (1 + n) ÷ (1 + i) − 1
- Approximation: r ≈ n − i
- After-tax real return: rAT = (1 + n × (1 − t)) ÷ (1 + i) − 1
n = nominal return, i = inflation, t = tax rate, all as decimals. Example: n = 7%, i = 3%, t = 15%: after-tax nominal = 5.95%, after-tax real = 1.0595 ÷ 1.03 − 1 = 2.86%.
Real return for common combinations
| Nominal return | Inflation 2% | Inflation 3% | Inflation 5% | Inflation 8% |
|---|---|---|---|---|
| 3% | 0.98% | 0.00% | −1.90% | −4.63% |
| 5% | 2.94% | 1.94% | 0.00% | −2.78% |
| 7% | 4.90% | 3.88% | 1.90% | −0.93% |
| 10% | 7.84% | 6.80% | 4.76% | 1.85% |
| 15% | 12.75% | 11.65% | 9.52% | 6.48% |
Frequently asked questions
What is the real rate of return?
The real rate of return is the return after removing the effect of inflation. It measures how much your purchasing power grows. If your investment earns 7% while prices rise 3%, you can buy about 3.88% more than before, not 7%.
What is the Fisher equation?
The Fisher equation links nominal returns, real returns and inflation: (1 + nominal) = (1 + real) × (1 + inflation). Rearranged, real = (1 + nominal) ÷ (1 + inflation) − 1. It is named after the economist Irving Fisher.
Why is nominal minus inflation only an approximation?
Subtracting inflation ignores the cross term between the two rates. It works well when both are small, but the error grows with higher rates: with a 20% return and 15% inflation the approximation says 5% while the exact real return is 4.35%.
How do taxes affect the real return?
Taxes are charged on the nominal gain, including the part that only offsets inflation. The calculator first reduces the nominal return by your tax rate, then adjusts for inflation. This is why after-tax real returns can be much lower or even negative when inflation is high.
What inflation rate should I use?
For past returns use the actual inflation for the same period, for example from the consumer price index. For planning, many people assume a long-run rate of around 2% to 3%, close to the targets of many central banks.
Can the real return be negative?
Yes. Whenever inflation is higher than your nominal return, your money buys less over time even though the account balance grows. Cash savings often have negative real returns in high-inflation years.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.
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