Inflation causes the purchasing power of a dollar to decrease over time. As such, it especially hurts consumers who are trying to save money or who are living off of fixed incomes (such as pensioners, social security beneficiaries, etc.) — without a competitive interest rate to offset inflation, money allocated as savings will, over time, lose value in real terms.
NerdWallet scanned the banking landscape to find the most competitive interest rates such that consumers and savers can end up in a “net-positive” situation.
NerdWallet’s Interest Rate Monitor – September 2012
Latest CPI Release: September 14, 2012 (for August 2012 statistics)
12-Month Inflation Rate: 1.70%
- Highest Surveyed Rate (out of 1,016 different accounts with an interest rate higher than inflation): 3.05% – Self Reliance Federal Credit Union (New York, NY) – 5-Year CD
- Bonus Rate: 6.00% – Silver State Schools Credit Union (Las Vegas, NV) – Checking/Savings – Balances up to $500 (must meet certain requirements to earn bonus rate)
- Bonus Rate: 2.27% – American Airlines Federal Credit Union (Dallas, TX) – Checking – Balances up to $5,000 (must meet certain requirements to earn bonus rate)
Select deposit accounts that beat inflation:
Checking and Savings Accounts
|Savings||Genuine Parts CU||2.02%||$75,000|
*Interest may still be paid for amounts above the maximum, but at lower rates.
|5-Year||Self Reliance Federal Credit Union||3.05%||$500|
|5-Year||Birmingham Police Credit Union||2.38%||$1,000|
|5-Year||Security First Federal Credit Union||2.36%||$5,000|
|5-Year||Progressive Credit Union||2.32%||—|
|3-Year||Encompass Federal Credit Union||2.02%||$500|
Some institutions may have membership eligibility restrictions. For a comprehensive list of deposit rates, refer to NerdWallet’s rates tool that lets you search for the best savings account rates across over 7,000 banks and credit unions.
The importance of finding the right deposit account
Consider a consumer with $20,000. At various yields, the inflation-adjusted value of the deposit after just one year (assuming constant inflation) is drastically different.
|Action||Yield||Inflationary Effect||Net Effect*||Net Gain/Loss|
|2)||Deposit in a Big Bank Savings Account||.01%||-1.70%||-1.65%||-$324|
|3)||Invest in the Highest Rate CD Identified||3.05%||-1.70%||1.33%||+$265|
*Net effect = (1+yield)/(1+inflation)
- Fewer accounts that beat inflation were identified (1,016 savings/CD accounts yielding greater than 1.70%). Inflation returned to 1.70% this month, up from a one-month dip to 1.4% in the last period. Subsequently, many savings vehicles struggled to keep up. Our recent survey returned one-fourth the number of accounts offered in August (4,054).
- Credit unions offer higher rates than competing institutions. 80% of accounts identified with a rate greater than 1.70% were a credit union product, the highest percentage seen in the past three months. Just 20% (205) were not credit unions.
- Savers must lock down their deposits for longer periods of time in order to achieve a competitive rate. 80% of the CD products beating inflation were for 5-year terms. 14% were 4-year CDs, and just four accounts were for 1-year terms or less.
It is important to know the differences between different types of deposit accounts. If liquidity is a primary concern, you would be best served by a savings or checking account with the highest rate available. In this interest rate environment, savings accounts and even some checking accounts can be nearly as competitive as a short-term CD, but without the same withdrawal restrictions.
Does your bank or credit union offer an exceptionally high interest rate on a deposit account? Email us at firstname.lastname@example.org