Nominal Definition & Example

Nominal Definition

Nominal is a term used to describe a category or group of items. It is typically used to refer to categories of items that do not have numerical values and are not ordered in any way. For example, a person’s gender (e.g. male or female) is a nominal category, as is a person’s eye color (e.g. blue, brown, green, hazel).

However, this term might have different implications according to the situation:

  1. In Economics: A nominal value is a value that is not adjusted for inflation.
  2. In Statistics: A nominal variable is a type of data that is used to label or categorize different items or observations.
  3. In Computer Science: Nominal is a term used to describe a data type that can only take on certain values within a set range.

What is a Nominal Rate of Interest?

A nominal rate of interest is the rate of return before fees, taxes, or other costs are taken into account. It is expressed as a percentage of the original amount invested and is the rate of interest that a lender or investor can expect to earn.

How Does It Work?

Nominal interest is calculated by multiplying the principal amount by the nominal rate of interest and the time period over which interest is being calculated. For example, if you invest $100 at an annual nominal rate of 5%, then after one year you would have earned $5 in interest.

Nominal Example

An example of a situation in which people might come across the nominal rate of interest is when opening a savings account. Banks will advertise the nominal rate of interest on their accounts, which is the rate of return before any fees or taxes are taken into account. In this case, the nominal rate of interest is a good indicator of the potential return on investment.

Next Steps

Explore our tax planning tools to reduce taxable income and evaluate what trust is best for you, according to your situation. Or you can access more of our glossary terms to know more!

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