However, if the savings rate were 10 percent and inflation was 2 percent, then the real interest rate would be 8 percent, meaning the savings account would be valued in real terms at an inflation-adjusted $1,080 by the end of the year.
The same applies to interest on debt. A borrower would benefit from higher inflation if interest rates were lower. Still, the bank issuing the debt would be on the losing side, as it would earn no interest in real terms. This would especially be the case if the rates were fixed. However, if the loan terms are not fixed, banks can reset interest rates, as with adjustable-rate mortgages (ARMs), to account for changes in inflation.