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Meaning & use

nominal interest rate

noun·Academicfinancetechnical

Last updated

UK/ˌnɒmɪnəl ˈɪntrəst reɪt/
US/ˌnɑːmɪnəl ˈɪntrəst reɪt/

Meaning

  1. nouncountablefinancetechnical

    The stated percentage a lender charges or a saver earns, before taking inflation or compounding into account.

    Grammar: Usually used with the: the nominal interest rate on the loan.

    Patterns

    • a nominal interest rate of five percent
    • the nominal interest rate on something

    The bank advertised a nominal interest rate of five percent on the account.

    Once inflation is taken off, the real return is lower than the nominal interest rate.

    A nominal interest rate of ten percent may cost more if interest is added monthly.

Word forms

pluralnominal interest rates

Common combinations

a nominal interest rate of
The loan carries a nominal interest rate of seven percent.
nominal versus real interest rate
Economists compare the nominal and real interest rate.
adjust the nominal interest rate for inflation
To find the real rate, adjust the nominal interest rate for inflation.
set the nominal interest rate
The central bank sets the nominal interest rate.
raise the nominal interest rate
The bank raised the nominal interest rate by a point.

Synonyms and how they differ

stated rate
Stated rate is simpler and describes the rate named in a contract.
headline rate
Headline rate is informal and refers to the rate advertised to customers.
face rate
Face rate is used for bonds and means the interest named on the bond.
annual percentage rate
Annual percentage rate includes extra costs and compounding, so it is usually higher.

Opposites

real interest rate

Word family

nominal adjective
in name only
interest noun
money paid for borrowing
rate noun
an amount measured against another
nominally adverb
in name or theory

Commonly confused: nominal interest rate or real interest rate?

nominal interest rate vs real interest rate

The real interest rate is the nominal rate minus inflation, so it shows actual buying power.

Practice

If the nominal interest rate is 6 percent and inflation is 2 percent, the real interest rate is about ___.

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