The nominal interest rate is usually thought of when people consider interest rates, because the nominal interest rate is just a monetary return that a person’s deposit will earn at the bank. For example, if the nominal interest rate is 6% per year, then the individual’s bank account will increase by 6% next year compared to this year (assuming of course that the individual has not withdrawn any funds). On the other hand, the actual interest rate takes into account purchasing power. For example, if the real interest rate is 5% per year, then the bank’s funds can be 5% more than the funds that are drawn and spent today. The link between nominal and real interest rates may not be surprising, as inflation can change the amount of things a certain amount of money can buy. Specifically, the real interest rate is equal to the nominal interest rate minus the inflation rate: in other words; the nominal interest rate is equal to the actual interest rate plus the inflation rate. This relationship is often referred to as the Fisher equation.