what is nominal 
nominal is a common financial term with several different meanings in the first it means very small or far below the real value or cost in finance this adjective modifies words such as a fee or charge a nominal fee is below the price of the service provided or presumably easy for a consumer to afford or a fee that is small enough that it does not have any meaningful impact on one s finances nominal may also refer to a rate that s been unadjusted for inflation types of nominalsin finance and economics nominal may also refer to an unadjusted rate or the change in value when defining items like the gross domestic product gdp or interest rates nominal points to a figure that is unadjusted for seasonality inflation interest compounding and other modifiers in this use nominal shows the contrast to real economic statistics that do make such adjustments or modifications to results because a nominal figure will deal with the unadjusted value of a study it is best not to use it as a comparative figure consider someone who has 100 in 1950 versus someone with 100 in 2020 although both people may have 100 which is the nominal value the real value is not the same where the nominal value does not factor in inflation the nominal value of an asset can also mean its face value for example a bond with a face value of 1 000 has a nominal value of 1 000 nominal vs realthe term real as opposed to nominal expresses the value of something after making adjustments for various factors in creating a more accurate measure for example the difference between nominal and real gdp is that nominal gdp measures the economic output of a country using current market prices and real gdp takes inflation into account to create a more accurate measure nominal vs real rate of returnthe rate of return ror is the amount an investor earns on an investment while the nominal rate of return reflects the investor s earnings as a percentage of the initial investment the real rate takes inflation into account as a result the real rate gives a more accurate assessment of the actual buying power of the investor s earnings for example imagine you buy a 10 000 stock and sell it the following year for 11 000 your nominal rate of return is 10 however to get a more accurate picture of your actual return this rate needs to be adjusted for inflation as the purchasing power of your money has likely changed over the one year therefore if inflation for that year is 4 the real rate of return is only 6 or the nominal rate of return minus the rate of inflation nominal vs real interest rateslike the difference between nominal and real rates of return the difference between nominal and real interest rates is that the latter is adjusted for inflation 1 for example if an investment is expected to return 7 interest but the inflation rate is 4 then the real interest rate on that investment is only 3 however in terms of interest the nominal rate also contrasts with the annual percentage rate apr and the annual percentage yield apy in the case of apy the nominal or stated rate is the rate the lender advertises and it is the basic interest rate the consumer pays on the loan on the other hand apr takes into account fees and other costs associated with the loan and it calculates the interest rate with those factors in mind for example imagine a borrower takes out a 1 000 loan with a 5 nominal interest rate but they also pay a 100 origination fee during the first year of the loan they face 50 in interest fees however when we factor in the origination fee they pay 150 in fees and interest this total fee sum equates to a 15 apr conversely apy takes both the fees and the effect of compounding into account to give the borrower an even more accurate picture of their interest rate example of nominalas in the example above the nominal value for someone who has 100 in 1950 does not change for someone who has 100 in 2020 what does change is the purchasing power where inflation decreases purchasing power over time assuming an average annual inflation rate of 3 46 from 1950 to 2020 then what 100 would buy in 1950 would cost 1 081 in 2020 thus the real value of 100 in 1950 would be 1 081 in 2020 