Real Interest Rate
Real interest rate is the interest rate that has been adjusted for inflation.
Real interest rate is the interest rate that has been adjusted for inflation. It reflects the real cost or return on borrowing or savings after taking into account the change in purchasing power due to inflation. For example, if you have a savings account with a nominal interest rate of 3% and the inflation rate is 5%, the real interest rate would be -2%.
This means that even though your savings are growing at 3% nominally, your purchasing power has decreased and is actually 2% lower than it was the year prior because inflation is eroding the value of your money at a higher rate than the interest earned. So, the real interest rate is important as it gives the borrower or investor a clearer picture of how much they are actually earning or paying after taking inflation into account.
Real Interest Rate is a macroeconomic concept that influences monetary policy, asset valuations, and investment decisions worldwide. Onramp's glossary explains Real Interest Rate in the context of Bitcoin's role as a potential hedge against traditional economic risks and monetary policy changes.
Frequently Asked Questions
What is Real Interest Rate?
Real Interest Rate is a macroeconomic principle that describes conditions or measurements within the broader economy. It influences central bank decisions, government policy, and investor behavior across all asset classes.
How does Real Interest Rate relate to Bitcoin?
Bitcoin's fixed supply of 21 million coins positions it as a potential counterbalance to economic forces described by Real Interest Rate. Many investors turn to Bitcoin as a hedge when macroeconomic conditions shift.
How does Onramp help investors navigate Real Interest Rate?
Onramp provides Bitcoin financial services including custody, IRA accounts, and educational resources that help investors understand how macroeconomic factors like Real Interest Rate may affect their portfolio strategy.
