Nominal Interest Rate
The stated interest rate on a loan or investment before adjusting for inflation.
What is Nominal Interest Rate?
The nominal interest rate is the interest rate stated on a financial instrument — such as a bond, savings account, or mortgage — without accounting for the effects of inflation. It represents the actual dollar return on an investment or the actual dollar cost of borrowing. The Fisher equation links nominal and real rates: nominal rate ≈ real interest rate + expected inflation. When inflation is high, a nominally attractive rate may deliver a negative real return, eroding purchasing power. Central banks set short-term nominal rates as the primary lever of monetary policy, making the nominal rate one of the most watched figures in financial markets.
Example
A 10-year US Treasury bond issued in early 2021 carried a nominal yield of approximately 1.5%. With inflation subsequently reaching 7–9%, investors who held the bond were earning a deeply negative real return — meaning their purchasing power fell despite receiving interest payments. This mismatch between nominal and real rates illustrates why the Fisher equation is essential when evaluating fixed-income investments.
Source: US Department of the Treasury — Daily Treasury Yield Curve Rates