Understand the difference between nominal interest x real interest is essential for anyone who wants to invest wisely and protect their assets from inflation.

These two concepts, although they may seem similar, have very different impacts on people. financial results.

💡 What is interest?

First of all, it's important to understand the basic concept of interest.
In a nutshell, interest is the cost of money.

• When you borrow money, you pay interest.

• When you lend or invest money, you earn interest.

Interest therefore represents the price of time - how much it is worth postponing present consumption in exchange for a future gain.

📊 What they are Nominal Interest?

The nominal interest represent the gross interest rate, without taking into account the impact of inflation.

This is the value that appears in loan contracts, financing or descriptions of financial investments.

👉 In other words, nominal interest shows how much your money “yields” on paper, but don't reveal how much you really earn in terms of purchasing power.

Practical example:
If an investment offers 10% per year nominal interest, This means that, at the end of a year, you will have 10% more than the amount invested - but without taking into account the loss of purchasing power caused by inflation.

📈 What they are Real Interest?

The real interest show the effective gain after discounting the inflation for the period.
In other words, it's how much your money has really appreciated in value in terms of purchasing power.

If inflation is high, it erodes the value of the nominal yield, reducing the investor's real gain.

Example:

• Nominal interest: 10% per year

• Inflation: 6% per year

Therefore real interest is approximately 4%, because part of the income was “consumed” by inflation.

⚖️ Difference in Practice

Suppose you invested R$ 10,000 with nominal interest of 10% per year.
At the end of 12 months, you would have R$ 11,000.

But if annual inflation was 6%, their purchasing power increased by only about 4% - in other words, R$ 400 real gain.

➡️ Even if the nominal value seems high, what really matters is the real gain in purchasing power.

🧠 Why is this difference so important?

Understand the difference between nominal interest e real interest is essential for:

• Do smarter investments;

• Avoid losses masked by inflation;

• Compare investment options fairly;

• Planning the real growth in your assets.

👉 Investing without taking inflation into account can lead to false sense of profit, when, in reality, purchasing power is decreasing.

🧮 How to Calculate Real Interest

Many people believe that subtract inflation from the nominal rate, But the correct calculation is slightly different.
The exact formula is:

Real Interest=(1+Nominal Interest1+Inflation)-1Real Interest = \left(\frac{1 + Nominal Interest}{1 + Inflation}\right) - 1Juro Real=(1+Inflac\c​a~o1+Juro Nominel​)−1

Applied example:

• Nominal interest: 10%

• Inflation: 6%

$$(1+0,10)/(1+0,06)-1=0,0377$$ $$0,0377\times 100=3,77\%$$

✅ Therefore real interest in this case it is 3.77% per year.

🔢 Tools for Calculating Real Interest

Today, there are several online calculators which make it easier to calculate real interest, This allows you to compare different investments quickly.

Some useful examples are:

• Real Interest Calculator - Money.com

• Investment Calculator

• Bankrate

These tools help to visualize the real profitability and make safer financial decisions.

💬 Comparative example

📊 As you can see, the IPCA+ Treasury maintains positive real profitability, This is because the value is adjusted for inflation and you pay an additional fee.

💡 Golden Tip for Investors

When choosing where to invest, always evaluate the real interest rate.

An investment with high nominal rate, but with high inflation, may yield less than another with a lower rate, but controlled inflation.

Another important point is diversify your investments between fixed and variable income, The aim is to balance profitability and security.

Conclusion

Understand the difference between nominal interest e real interest is fundamental to protecting your money and ensuring that it actually grows over time.

Ignoring inflation can lead to wrong decisions, jeopardizing financial returns.

Therefore, when analyzing any investment, always look at the real gain, use reliable calculation tools and, if possible, count on the support of a financial advisor.