how does a real interest rate affect investment returns 
a real interest rate is the nominal or stated interest rate less the rate of inflation for investments the inflation rate will erode the value of an investment s return by decreasing the rate of return for example if the rate of return for bonds you hold is 6 and the inflation rate is 3 then the real rate of return will be 3 not 6 that s because the interest rate of 6 is adjusted downward by 3 to account for the unfortunate power of inflation to erode value 6 3 3 the bottom linethe real interest rate is an interest rate that has been adjusted for inflation to reflect the real cost of funds to a borrower and the real yield to a lender or an investor it reflects the rate of time preference for current goods over future goods and is calculated as the difference between the nominal interest rate and the inflation rate 