Explanation:

The real interest rate is the nominal interest rate – inflation rate. For example, if base rates is 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1%. A higher real interest rate is good for savers and bad for borrowers. Note, even if nominal interest rates were high e.g. 11%, savers would see a decline in their real value of money if inflation was 12%. This is why the real interest rate is important. Real interest rates can be negative if inflation is higher than nominal interest rates.