Real rate of return — definition
Real rate of return is investment return after accounting for inflation. A key indicator for evaluating true investment profitability.
Quick Answer
Real rate of return is investment profit adjusted for inflation, showing how much your purchasing power actually grew rather than the nominal PLN gain. The quick estimate is nominal rate minus inflation; the exact Fisher formula is (1 + nominal) / (1 + inflation) − 1. For example, a 6% deposit with 4% inflation yields roughly 2% real (precisely 1.92%). Real returns can be negative even when nominal returns are positive — Polish deposits lost real value during 2021-2023. This is educational information, not investment advice.
What is real rate of return?
Real rate of return is investment profit adjusted for inflation. It tells you how much you actually earned in terms of purchasing power — not in nominal PLN.
Formula
Real rate of return ≈ Nominal rate of return − Inflation
Exact Fisher formula:
(1 + nominal) / (1 + inflation) − 1
Example
- Your deposit yields 6% annually (nominal rate)
- Inflation is 4%
- Real rate of return ≈ 6% − 4% = 2%
More precisely: (1.06 / 1.04) − 1 = 1.92%
Why is this important?
Nominal gains can be deceptive. A 6% deposit with 7% inflation means you're losing 1% purchasing power annually — despite nominally "earning".
Historical context (Poland)
| Year | Deposit interest rate | Inflation | Real return |
|---|---|---|---|
| 2021 | 0.5% | 5.1% | −4.6% |
| 2022 | 4% | 14.4% | −10.4% |
| 2023 | 6% | 11.4% | −5.4% |
| 2024 | 5.5% | 3.7% | +1.8% |
During 2021-2023, savings in deposits lost real value despite positive interest rates.
Real rate and different asset classes
| Asset | Typical nominal rate | Real (at 4% inflation) |
|---|---|---|
| Savings account | 5% | 1% |
| EDO bonds | inflation + 1% | 1% |
| Global ETF (long-term) | 8-10% | 4-6% |
| Real estate | 6-8% | 2-4% |
How Freenance can help
Freenance shows both nominal and real returns from your portfolio. You see the true picture — whether your investments beat inflation or just create an illusion of profit.
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FAQ
What is the difference between nominal and real return?
Nominal return is the percentage your portfolio grew in PLN. Real return adjusts that figure for inflation, showing how much your purchasing power actually increased. A 6% nominal return with 4% inflation is only roughly 2% in real terms.
Should I use the simple formula or the Fisher equation?
For everyday estimates, "nominal minus inflation" is good enough. When the numbers are large (high inflation or high returns), the Fisher formula (1+nominal)/(1+inflation) − 1 is more accurate and avoids overstating the real return.
Which inflation rate should I subtract — CPI or HICP?
For Polish personal finance the CPI published by GUS is the most common benchmark, since it reflects domestic prices. HICP is used for EU-wide comparisons. Pick one measure and stay consistent across years to keep your results comparable.
Can real returns be negative even when nominal returns are positive?
Yes, and it happens often with bank deposits. In 2022 typical Polish deposit rates near 4% were well below CPI inflation around 14%, producing a deeply negative real return despite "earning" interest.
Does the Belka tax affect real return calculations?
Yes — for a fair picture you should also subtract the 19% capital gains tax from realised gains and interest. Real after-tax return is the most honest measure of how an investment compares with inflation.
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