Real return: are your savings beating inflation?

The idea

The real return is what your savings earn once inflation is taken out. It tells you whether your money can buy more, or fewer, things than before.

As a first approximation: real return ≈ rate earned − inflation. If it is positive, your purchasing power grows; if it is negative, it shrinks, even if your balance gets bigger.

Two examples

For an exact calculation, divide instead of subtracting: (1 + rate) ÷ (1 + inflation) − 1. When rates are low, the gap with the approximation is small.

Fees and tax count too

• Fees reduce the return even before inflation is taken into account.
• In a non-registered account, interest is taxable, which reduces what you keep.
• In a TFSA, investment income is generally tax-free, even when you withdraw it.

To compare accounts, see TFSA, RRSP or FHSA: what are the differences?

Check your own situation

Compare the rate on your account or investment with the latest inflation figure on our Indicators page, then project your savings with the compound interest calculator.

This guide does not say which investment to choose. A higher return often comes with more risk, and past returns do not guarantee future returns.