A 6% rate doesn’t mean you earn 6%. Subtract inflation and taxes to find out how much your purchasing power really grows.
The preloaded values are an example: replace them with your own figures.
Real annual return
With these figures, a nominal rate of 7.00% with inflation of 4.00% leaves you a real return of 2,88%. In 5 years your balance would be $14.025,52, which in today’s money is equivalent to $11.527,95.
Nominal balance vs. real purchasing power
| Year | Nominal balance | In today’s money |
|---|---|---|
| Year 1 | $10.700,00 | $10.288,46 |
| Year 2 | $11.449,00 | $10.585,24 |
| Year 3 | $12.250,43 | $10.890,59 |
| Year 4 | $13.107,96 | $11.204,74 |
| Year 5 | $14.025,52 | $11.527,95 |
Results are for reference only and are not actual figures. Values depend on the country, the financial institution, taxes and current laws, and must be validated with an authorized financial institution. Banco.guru is an educational guide to what can be achieved; it does not offer products or personalized financial advice.
Tips for using this result
- Positive real return = your purchasing power grows.
- Always compare products by their net real return, not by the advertised rate.
- A high return with high risk is not comparable to a low, safe one.
- See the effect of time with the compound interest calculator.
What is real return?
It is what your money really earns in purchasing power, after subtracting inflation. If your savings earn 7% a year and inflation is 4%, you don’t earn 7%: you earn about 2.9% in real terms. The difference between the nominal rate y real rate is key to not confusing growth in your balance with growth in wealth.
The formula (Fisher equation)
Real return = (1 + net nominal rate) ÷ (1 + inflation) − 1. The quick approximation “nominal − inflation” works with low rates, but drifts from reality when rates are high. This calculator uses the exact formula and, if you enter a tax, first deducts the part of the gain taken by the tax authority.
How to read the result
- Positive: your money grows in purchasing power.
- Zero: you only break even with inflation.
- Negative: even if you see more money in your account, you buy less with it.
Why it matters for your decisions
Comparing products by their advertised rate can be misleading. Two options with the same nominal rate can have different real results because of taxes, fees or terms. Also, seeking a higher return usually means more risk: check your risk profile and the difference between nominal and real interest before deciding.
Frequently asked questions
What is the difference between nominal and real return?
Nominal is the rate you are paid; real subtracts inflation and shows how much your purchasing power grows.
Why isn’t it enough to subtract inflation?
Subtracting is an approximation. The exact formula divides (1 + nominal) by (1 + inflation); the difference grows when rates are high.
What inflation should I use?
The expected inflation for the term of your investment. As a reference, use recent official data from your country and try scenarios.
Does a negative real return mean I lose money?
You lose purchasing power, even if the nominal balance rises. That is why it is important to compare it before deciding.
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