Real interest rates are adjusted for inflation. While nominal interest rates reflect the stated or contracted rate without any adjustment for inflation, real interest rates provide a more accurate measure of the purchasing power of interest earnings. The formula to calculate the real interest rate is generally:
\[ \text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate} \]
This adjustment allows investors and consumers to understand the true cost of borrowing and the real yield on savings or investments in terms of purchasing power.