Nominal Interest Rates

Nominal interest rates are the stated percentage charged or paid for borrowing or saving money, without adjusting for inflation. For example, if a bank offers a 5% interest rate on a savings account, that 5% is the nominal rate. It reflects the gross return or cost before considering how inflation might reduce the purchasing power of the money over time. Understanding nominal rates helps gauge the nominal cost of borrowing or the nominal gain on investments, but it doesn’t show the real increase in value after accounting for inflation.