What is a nominal interest rate?

The interest rate is the percentage of money that the debtor pays to the creditor for the loan privilege. Most interest rates are cited as a nominal interest rate, which means that it is not modified about inflation. The nominal interest rate does not take into account the fact that the value of money changes over time and reduces over time. This does not necessarily have to be a bad thing, because it is not possible to predict future inflation and because it is necessary to agree a fixed return rate for borrowed funds. It is an interest rate as mentioned. This differs from what is called the actual interest rate, which is modified for inflation. Real interest rates are usually lower than nominal interest rates. For example, if the banks insert $ 1,000 USD (USD) into a deposit certificate that offers a Five percentage of return levels, then at the end of the year there will be 50 USD in the account, which will increase to $ 1,050.

five percent is a nominalThe interest rate in the above example. However, if inflation is calculated for two percent for a given year, although it does not affect the nominal interest rate, it affects the actual interest rate. Customer dollars could increase by five percent, but if all money becomes two percent lower for this time in terms of purchasing power, the actual interest rate was actually only three percent. Of course, three percent of the actual interest rate is better than two percentage of value that the depositor would experience differently, and therefore it is likely why he put his money on a deposit - to maintain his purchasing power.

In times of rapid inflation or other forms of economic confusion, the nominal interest rates may only reduce the other loss of the purchasing power of the person. If the actual interest rates are zero or even negative, even a positive nominal interest rate can bring a negative actual return rate. Fortunately, conditions such as these are rare in developed countries, and dockEven then the nominal interest rate still offers a comparative advantage. In addition to interest rates, the concepts of "nominal" and "real" may apply to many types of economic data such as wages, government spending and gross domestic product of the country,