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DEFINITION of 'Nominal Interest Rate'. The interest rate before taking inflation into account. The nominal interest rate is the rate quoted in loan and deposit agreements. The equation that links nominal and real interest rates is: (1 + nominal rate) = (1 + real interest rate) (1 + inflation rate).
Because of inflationâs impact, the interest rate on a fixed income security can be expressed in two ways. 1  The nominal, or stated, interest rate is the rate of interest on a bond without any adjustment for inflation. 2  The real interest rate on an asset is the nominal rate minus the rate of inflation.