what is a real interest rate 
a real interest rate is an interest rate that has been adjusted to remove the effects of inflation real interest rates reflect the real cost of funds in the case of a loan and a borrower and the real yield or roi for an investor the real interest rate of an investment is calculated as the difference between the nominal interest rate and the inflation rate the bottom linethe annual equivalent rate or aer is the actual interest rate on a loan when you account for how interest is compounded this rate is higher than the nominal interest rate for a loan if interest is compounded more than once a year because this is a more accurate representation of the returns of a loan than the nominal rate the aer is also known as the effective annual interest rate 