Nominal vs. Real Returns

A fixed deposit paying 7% a year has a 7% nominal return - the number on the statement. If inflation that year runs at 6%, the real return is only roughly 1% (the approximation is nominal minus inflation) - your money grew, but its actual purchasing power barely moved. If inflation had instead been 8%, that same 7% nominal return would represent a real-terms loss, even though the account balance still went up. This distinction matters most for 'safe' fixed-income options during high-inflation periods, where a comfortable-looking nominal rate can quietly fail to keep pace with rising prices - see our articles on inflation and purchasing power for the fuller picture of how this erodes savings over time.