The real interest rate is the stated interest rate associated with an investment or loan, minus the inflation rate. For example, an investor is evaluating whether to invest in a financial instrument that pays 5% per year. The current inflation rate is 3%, so the real interest rate associated with the prospective investment is the net of the two figures, which is 2%. If the inflation rate had instead been 6%, then the real interest rate would be negative 1%. This is a valuable concept when there is a significant inflation rate, or when the inflation rate is projected to increase.