It is critical to always understand that the interest rates announced and advertised, the ones you sign and agree to are not the REAL interest rates, instead these are nominal interest rates. Think of it as the gross interest rate before you calculate depreciation of currency through inflation to get the net interest rate you would really have. To calculate the real interest rate you will be getting, you must calculate the inflation rate forecasted over the years of savings bond you would be signing up for.

In other words, real interest rates are the nominal interest rates announced minus annual inflation rates over the years of savings bond contracted. Tune in next week for an example to know more about calculating your real returns on investment and inflation.

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