The interest rate you're offered, or the one you're already earning, tells you how fast a sum of money grows. It doesn't tell you what that money will actually buy, and once prices move over the same period, the same rate can leave you further ahead or further behind than the number on its own suggests.

Nominal and real are answering different questions

A nominal rate is the one quoted on a savings account, a bond, or a loan: interest paid on a given sum over a given period, with nothing else taken into account. A real rate asks what that interest is worth once prices have moved over the same stretch of time. The difference between the two is the rate of inflation over that period, so a rate that looks generous against today's prices can turn out flat, or worse, against next year's.

The inflation figure you pick changes the answer

There is more than one official measure of inflation in the United States. The Bureau of Labor Statistics publishes the Consumer Price Index (CPI), and the Bureau of Economic Analysis publishes the Personal Consumption Expenditures (PCE) index, and the two are constructed differently enough that they rarely move together exactly. Put the same amount, period, and rate through each, and you get two different real returns.

Whatever amount, period, and rate you enter stays in your browser.

Three numbers go in: the amount you're starting with, the period you're holding it for, and the nominal rate, meaning the interest rate as stated on the account or investment, before anything is subtracted for inflation. The calculator uses those three to work out what the money grows to on paper, and then what that growth is actually worth once prices have moved.

What the calculator does with your inputs

The nominal value is simply the amount compounded at the rate you entered over the period you chose. This is the figure that would appear on a statement: it takes no account of inflation at all.

The real value after CPI takes that same nominal figure and adjusts it using the Consumer Price Index (CPI), the most commonly quoted measure of how much prices for a typical basket of goods have changed. The real value after PCE repeats the same step using the Personal Consumption Expenditures index (PCE) instead, a different measure of the same thing, built on a different method of counting what people actually buy. The two are shown side by side because they rarely move by quite the same amount over the same period, so the answer to "what did my money actually buy?" can differ depending on which one you ask.

Reading the result

Where the real value sits below the nominal value, prices rose faster than the rate you entered, and the gap between the two is the ground the interest rate failed to cover. Where the real value sits above it, the rate outpaced inflation over that period. The real rate of interest shown alongside the two values is the nominal rate with that same adjustment applied, so it can be compared directly against the rate printed on the account.

The result depends entirely on the rate, period and amount you type in, and on which inflation series you choose to check it against. It doesn't know what your account will actually pay, and it can't tell you what inflation will do next: it only shows what the arithmetic produces from the figures in front of it. A mistyped period or a rate entered as a whole number instead of a percentage will produce a wrong answer without any warning that it's wrong. The method behind the figures it draws on is set out on How This Site Handles Figures. The result is illustrative only and isn't financial advice.

Two official measures, two different questions

The Consumer Price Index (CPI) and the Personal Consumption Expenditures price index (PCE) both describe how prices are moving, but they are built differently and end up answering slightly different questions. CPI comes from a household expenditure survey: what people say they actually bought, priced against a basket that only gets updated occasionally. PCE is drawn from business and government spending records, covers a wider range of purchases, including some paid on a household's behalf such as employer-sponsored health insurance, and updates its basket more often as spending patterns shift.

Why substitution pulls them apart

When the price of beef climbs, some households switch to chicken instead. CPI's fixed basket takes a while to catch up with that switch, while PCE adjusts to it more readily. That difference in how quickly each measure reflects substitution is one of the main reasons CPI and PCE can tell two different stories about the same months in the same economy.

Why the Federal Reserve watches PCE

The Federal Reserve frames its inflation goal around PCE. That is a choice about which yardstick suits a policy decision: each index is built to answer a different question about the same set of prices.

What the gap means for your return

Deflate the same nominal return by CPI and then by PCE and you will usually get two different real values. The size of that gap is simply the difference between the two measures over the period you held the money. Which figure matters more depends on what you are asking: CPI sits closer to your own household cost of living, while PCE is the measure the Federal Reserve itself is steering toward.

The Consumer Price Index (CPI) is published monthly by the Bureau of Labor Statistics, and it tracks the price of a fixed basket of goods and services that a household buys. The Personal Consumption Expenditures price index (PCE) is published monthly by the Bureau of Economic Analysis, and it tracks a basket that shifts as spending patterns shift, which is one reason the two series rarely move by quite the same amount in a given month.

Why the calculator shows both

A nominal interest rate looks the same whichever inflation measure you set beside it, but the real value it leaves you with does not. Because CPI and PCE are built from different baskets and different methods for how substitution between goods is handled, the real return calculated with one can come out a little higher or lower than the real return calculated with the other. The calculator runs your figures against both series so you can see that gap.

Looking up the current figure yourself

The month-by-month values for both series are published on FRED, the database run by the Federal Reserve Bank of St. Louis, with each release dated to the month it covers. Checking the source directly is worth doing before you rely on a figure, since a release is sometimes revised after it first appears, and the calculator's own workings are shown so you can follow how a given CPI or PCE figure was applied to your numbers.

This page uses the FRED API but is not endorsed or certified by the Federal Reserve Bank of St. Louis. For more on why the Federal Reserve targets one of these measures over the other when it sets policy, the glossary entry on the dual mandate sets out the connection.