Real rate
A return or interest rate after inflation has been taken out, measuring the change in what the money can buy rather than the change in its face value.
A real rate strips inflation out so that what is left describes buying power. Earning 6 percent while prices rise 4 percent does not leave you 6 percent better off in the shops, and it does not quite leave you 2 percent better off either. The same adjustment applies to interest on a deposit and to the total return on an investment, because both are measured in money whose value is moving. The exact relationship multiplies rather than subtracts:
Taking inflation away from the nominal rate is a shortcut that is close enough at small numbers and drifts as they grow. At 8 percent against 5 percent inflation the shortcut says 3 percent while the real rate is 2.857 percent. At 40 percent against 30 percent it says 10 percent while the answer is 7.69 percent.
Two things get missed. The first is that a real rate can be negative: an account paying 2 percent while prices rise 3 percent loses about 1 percent of its buying power a year, even though the balance on the statement goes up every month. The second is tax. In the United States, tax is charged on nominal interest and nominal gains rather than on the real part, so the after-tax real return is lower again. The real return calculator runs both adjustments in order.