Real Return Calculator
Enter a nominal return and inflation rate to get the real (inflation-adjusted) return, plus what your investment will be worth in today's money. Earning 7% while prices rise 3% does not mean you gained 7% in real terms.
How it works
Nominal vs real return
Your nominal return is the headline percentage a fund or account advertises. Your real return is what is left after inflation eats into the buying power of those gains. If a balance grows but prices rise just as fast, your purchasing power has not actually improved.
The exact formula
The precise relationship is the Fisher equation: real = (1 + nominal) ÷ (1 + inflation) − 1. The familiar shortcut of nominal minus inflation is only an approximation, and it drifts upward as rates climb. This calculator uses the exact Fisher formula, not the shortcut.
A worked example
Suppose a 7% nominal return with 3% inflation. The exact real return is (1.07 ÷ 1.03) − 1 = 3.88%. The simple subtraction would say 4%, overstating your gain by about 0.12 points. The gap widens at higher rates. The real future value here is the nominal future value divided by cumulative inflation over the same period.
Caveats
- Inflation is not fixed; it varies year to year and over decades.
- Your personal inflation rate may differ from the headline CPI, depending on what you actually buy.
- Taxes and fees reduce your real return further and are not included here.
Read next
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Frequently Asked Questions
What is the difference between real and nominal return?
Nominal return is the headline figure; real return subtracts inflation to show your gain in purchasing power. Over long horizons, the real return is what actually matters.
Why not just subtract inflation from the nominal return?
It works as a rough approximation but is not exact. The precise formula is (1 + nominal) ÷ (1 + inflation) − 1. The larger the numbers, the bigger the error from simple subtraction.
What inflation rate should I assume?
Many developed-market central banks target around 2%. But it varies widely by period and country, so use a figure that fits your own situation.
Does this calculator include taxes and fees?
No. It shows the pre-tax, pre-fee real return so the math stays transparent. In practice, taxes on gains and fund fees reduce your real return further, so treat the result as an optimistic ceiling.
Can a real return be negative?
Yes. Whenever inflation is higher than your nominal return, the real return is negative and your purchasing power shrinks even though the balance rises. Cash in a low-rate savings account often loses ground this way.
Why might my personal inflation differ from the official rate?
The headline CPI is an average basket. If you spend more on categories that are rising faster, such as rent or healthcare, your personal inflation can be higher, which pushes your real return below the published figure.
This calculator is an educational estimate, not individual investment advice. It does not account for taxes or fees. Future inflation and returns are unknown.