Glossary

Nominal Interest Rate

1 min read

The nominal interest rate is the rate stated on a bond or loan. It represents the actual cost that borrowers must pay to lenders to borrow their money. Nominal interest rates do not take into consideration economic factors like inflation.

For example, if the nominal interest rate for a borrower is 5%, the borrower will have to pay 5 cents for every dollar borrowed.

Borrowers are almost always presented with interest rates that are nominal instead of real or effective unless explicitly stated otherwise.

Related Terms
Bond
A bond is a low risk debt instrument issued by companies, governments, or other entities to finance a project. Credit rating agencies assign grades to bonds based on the entity’s capacity to meet its financial commitments.
Learn more.
Inflation
Inflation is a general increase in the price of goods and services in an economy over time. Inflation is primarily due to a constant increase in the monetary base by the local government or central bank.
Learn more.
Explore More Terms →