Real vs Nominal Return Calculator
The return, the inflation it has to beat, and the tax on it
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Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Educational estimate only. Confirm the assumptions, current rules, fees, and rounding that apply to your situation before making a decision.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the amount invested and the nominal annual return: the rate a bank, a statement or a fund quotes, before inflation and before tax. Use a negative number for a loss.
- 02
Enter the inflation rate over the same years. CPI-U rose 3.4% in the 12 months to August 2026; for a period in the past, the CPI Inflation Calculator gives the actual figure.
- 03
Enter the number of years and the tax rate charged on the return each year. Use 0 for an IRA, 401(k) or Roth, and your ordinary income tax rate for interest in a taxable account.
- 04
Read the real return after inflation and tax at the top, then compare the exact real rate with the subtraction shortcut and see how much of the real gain the tax takes.
- 05
Scroll the year-by-year table to see the balance in the dollars of each year beside what it buys in today's dollars.
Formula
Real return = (1 + nominal return) ÷ (1 + inflation) − 1. The subtraction shortcut is nominal return − inflation, and it overstates the real return by exactly real return × inflation. With a tax charged on the return each year, the after-tax nominal return is nominal return × (1 − tax rate) when the return is positive, and the after-tax real return is (1 + after-tax nominal return) ÷ (1 + inflation) − 1. The nominal return needed to keep pace after tax is inflation ÷ (1 − tax rate). The balance after n years is amount × (1 + after-tax nominal return)^n, and in today's dollars it is that balance ÷ (1 + inflation)^n. Tax each year is that year's growth × the tax rate.
Example
$10,000 is invested at a 7% nominal return for 20 years, with inflation at 3.4% and a 22% tax on the return each year. The exact real return before tax is 1.07 ÷ 1.034 − 1 = 3.48%, not the 3.60% that subtraction gives. The tax cuts the nominal return to 5.46%, so the real return after tax is 1.0546 ÷ 1.034 − 1 = 1.99%, and the tax takes 43% of the real return. To keep pace with inflation after the tax, the return would have to be 4.36%. In the first year the balance grows to $10,546 after $154 of tax, worth $10,199 in today's dollars. After 20 years it reaches $28,957, or $14,837 in today's dollars, a gain of $4,837 in buying power, after $5,347 of tax. With no tax, as in an IRA, the same money reaches $38,697, worth $19,827 today.
Definitions
- Nominal return
- The percentage an investment grows by in dollars, before adjusting for inflation. It is the rate banks, statements and funds usually quote.
- Real return
- The percentage an investment grows by in buying power, after inflation. It is found by dividing one plus the nominal return by one plus inflation and subtracting one.
- Fisher equation
- The exact relationship between nominal returns, real returns and inflation: (1 + nominal) = (1 + real) × (1 + inflation). Subtracting inflation is its approximation.
- Today's dollars
- A future amount restated at today's prices by dividing it by the growth in prices between now and then. It shows what the money will actually buy.
- Tax drag
- The return lost to tax charged on growth each year. Because the tax falls on the nominal return, it takes a larger share of the real return than the tax rate itself.
Good to know
Why dividing by inflation beats subtracting it
Most people convert a return to a real return by subtraction: a 7% return with 3.4% inflation must be 3.6% after inflation. It is close, and it is wrong in a way that grows with inflation. Inflation does two things to an investment. It shrinks the buying power of the money you started with, and it shrinks the buying power of the return you earned on it. Subtraction only accounts for the first. The exact conversion, known as the Fisher equation after the economist Irving Fisher, divides instead: one plus the nominal return, divided by one plus inflation, minus one. For 7% and 3.4% that is 1.07 divided by 1.034, minus 1, or 3.48%. The shortcut overstates the real return by the real return multiplied by the inflation rate, here about 0.12 of a percentage point. That sounds trivial, and for a single year at today's inflation it mostly is. Over 20 years on $10,000, before tax, the shortcut says your money would buy what $20,286 buys today; the exact figure is $19,827. The error matters far more when inflation is high. At a 12% return with 10% inflation, subtraction says 2.00% and the exact real return is 1.82%, so the shortcut overstates the real gain by almost a tenth. The same rule runs in reverse. To find the nominal return you need for a given real return, multiply rather than add: a 3% real return at 3.4% inflation requires 1.03 times 1.034, minus 1, or 6.50%, not 6.40%. Whenever an interest rate, a raise or an investment return is set against inflation, dividing is the safe habit, and it is the method every figure on this page uses.
Tax is charged on the inflation part of a return too
Tax makes inflation more expensive than it looks, because the tax is charged on the nominal return, not the real one. When an account pays 7% and prices rise 3.4%, the whole 7% is taxable, including the 3.4 points that did nothing but keep your money's buying power level. On this page's example, a 22% tax cuts the 7% return to 5.46%. Dividing by inflation, the real return after tax is 1.99%, down from 3.48% before tax. The tax rate is 22%, but it removes 43% of the real return, and the higher inflation runs, the larger that share becomes, because more of the nominal return is inflation compensation that is still taxed. A useful figure falls out of this. The nominal return you need just to keep pace with inflation after tax is inflation divided by one minus the tax rate: at 3.4% inflation and a 22% tax, 4.36%. Any taxable return below it loses buying power even while the balance rises. A 4% certificate of deposit in a taxable account beats 3.4% inflation before tax and falls behind it after, at 3.12%. Over 20 years the example's $10,000 grows to $28,957 in a taxable account, after $5,347 of tax, and buys what $14,837 buys today. Where the return is not taxed each year, the same return grows to $38,697, worth $19,827 today. That gap, not the headline rate, is the case for holding interest-bearing savings in an IRA, a 401(k) or a Roth account when you can. The page models a tax taken every year, which is how bank interest and most bond interest are taxed. Qualified dividends and long-term capital gains are taxed at lower rates, and gains only when sold, so for a stock fund the yearly tax overstates the drag.
Choosing an inflation rate for the years ahead
Every real-return figure is only as good as the inflation rate behind it. For a period that has already happened, use the actual change in the Consumer Price Index. The Bureau of Labor Statistics' CPI for All Urban Consumers, CPI-U, is the measure most people mean by inflation. It rose 3.4% in the 12 months to August 2026, to an index level of 334.980, according to the BLS release of 11 September 2026. Over the ten years from August 2016, when the index stood at 240.849, it rose 39.08% in total, or 3.35% a year compounded. The CPI Inflation Calculator gives the change between any two years. For the future, any rate is an assumption, and a single year's reading is a poor guide to twenty. Market prices offer one reference point. On 14 September 2026 the 10-year Treasury yielded 4.97% and the 10-year Treasury Inflation-Protected Security yielded 2.60% above inflation, according to Treasury's daily yield curves. The gap of 2.37 percentage points is a rough reading of the inflation investors were pricing over the decade, though forces other than expected inflation move it too, so treat it as an approximation; the Breakeven Inflation Calculator works it out. Because the answer is sensitive to the assumption, run the page at two or three rates. At the example's 7% return and 22% tax, the real return after tax is 1.99% at 3.4% inflation. If inflation rose to 5.46%, the after-tax nominal return, the real return after tax would reach zero. Planning at a slightly higher rate than you expect costs little if you turn out to be wrong in the safe direction, and far less than discovering a shortfall at the end.
Where the real return changes a household decision
Real returns are not an academic refinement; they change the answer to ordinary money questions. The first is short-term savings. Cash earns a nominal rate and is taxed each year, so the question to ask of a savings account is not whether its rate beats inflation but whether its rate after tax does. With inflation at 3.4% and a 22% federal tax, that takes 4.36% before any state tax. The FDIC's national average rate on savings accounts was 0.38% in its August 2026 report, so money in a typical account lost buying power, while an account paying close to short-term Treasury yields, 4.11% on the 3-month Treasury on 14 September 2026, came much closer to holding even. The second is long-term goals. A retirement or college target priced in today's dollars grows every year it is away, and projecting a balance at a nominal return while ignoring inflation makes a plan look better funded than it is. Restating the projection in today's dollars, as the table on this page does, keeps the goal and the savings in the same units, and the Inflation-Adjusted Savings Goal Calculator restates the target itself in future dollars. The third is comparing choices. A certificate of deposit paying a fixed nominal rate, an I bond or TIPS whose return is tied to inflation, and a stock fund with no promised return can only be compared fairly in real, after-tax terms. The fourth is debt. The real interest rate on a fixed-rate loan falls when inflation rises, the other side of the same arithmetic, and the Inflation and Fixed-Rate Debt Calculator works it out. In every case the method is the same: start from the nominal figure, take off the tax that applies to it, then divide by one plus inflation.
Frequently asked questions
What is the difference between a nominal and a real return?
A nominal return is how fast your money grows in dollars. A real return is how fast it grows in buying power, after inflation. On this page's example, a 7% nominal return with 3.4% inflation is a 3.48% real return. With no tax taken along the way, $10,000 grows to $38,697 over 20 years, which buys what $19,827 buys today.
Why not just subtract inflation from the return?
Because inflation shrinks the return itself as well as the money you started with. The exact real return is (1 + nominal return) divided by (1 + inflation), minus 1. Subtracting 3.4% from 7% gives 3.60%; the exact answer is 3.48%. The error equals the real return times the inflation rate, so it is small when inflation is low and large when it is high: at a 12% return and 10% inflation, subtraction says 2.00% and the exact figure is 1.82%.
How does tax change the real return?
Tax is charged on the whole nominal return, including the part that only made up for inflation. In the example, a 22% tax cuts the 7% return to 5.46%, and the real return falls from 3.48% to 1.99%. The tax takes 43% of the real gain even though the rate is 22%. Over 20 years the balance reaches $28,957, or $14,837 in today's dollars, after $5,347 of tax.
Can a return beat inflation before tax and lose to it after tax?
Yes. With a tax on the nominal return, the return needed just to keep pace is inflation divided by (1 minus the tax rate). At 3.4% inflation and a 22% tax that is 4.36%. A 4% return beats 3.4% inflation before tax, but after 22% tax it is 3.12%, which falls behind. The same investment can grow buying power inside an IRA and lose it in a taxable account.
What inflation rate should I use?
For a past period, use the actual change in the Consumer Price Index over those years; the CPI Inflation Calculator gives it. For the future any figure is an assumption. For scale, CPI-U rose 3.4% in the 12 months to August 2026 (BLS), and on 14 September 2026 the 10-year Treasury yielded 4.97% against a 2.60% real yield on the 10-year TIPS, a gap of 2.37 percentage points that roughly reflects the inflation the bond market expects. Run the page at more than one rate.
Does this work for stocks and funds?
The rate arithmetic works for any return. The tax model fits interest best, because interest is taxed every year at your ordinary rate. Qualified dividends and long-term capital gains are taxed at lower rates, and gains only when you sell, so for a stock fund held for years a yearly tax at your full rate overstates the drag. Use a lower effective rate, or 0 for money inside a retirement account.
How do I use the real return for a savings goal?
It tells you how fast your buying power grows. At the example's 1.99% after-tax real return, $10,000 buys what $14,837 buys today after 20 years. To restate a goal priced in today's dollars as the future-dollar figure you must reach, use the Inflation-Adjusted Savings Goal Calculator.