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NerdWallet Interest Rate Monitor: Deposit Accounts that Beat Inflation – July 2012

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July 2012 – Inaugural edition

Background

 Each month, the U.S. Bureau of Labor Statistics releases Consumer Price Index (CPI) data, an economic indicator commonly used to measure consumer inflation. Specifically, the CPI is a “measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” In other words, how have prices changed over the last twelve months?

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.

To help consumers make the best of this situation, NerdWallet will release a monthly installment to track non-promotional deposit accounts whose interest rates beat inflation.  NerdWallet will scan 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 – July 2012

Latest CPI Release: June 14, 2012 (for May 2012 statistics)

12-Month Inflation Rate: 1.70%

Highlights

  • Highest Surveyed Rate (out of 1322 different accounts that had an interest rate higher than inflation):  2.85% – Security Service FCU
  • High Promotional Rate: 5.00% offered by Patelco Credit Union – CD (1 Year) – $1000 only – Available only within 10 days of establishing new membership
  • Exceptionally High Rate: 10.00% offered by Service Credit Union – Savings Account – $10,000 Max – Available only for active duty military members serving in a combat zone

Select deposit accounts that beat inflation:

 Checking and Savings Accounts

Type Institution APY Max*
Checking Citizens FCU 2.25% $25,000
Savings Genuine Parts CU 2.02% $75,000
Savings Aflac FCU 2.01% $100,000

*Interest may still be paid for amounts above the maximum, but at lower rates.

 Time-Deposits (CD’s)

Term Institution APY Min
7-Year Security Service FCU 2.85% $100,000
5-Year One Source CU 2.78% $1000
2-Year Wymar FCU 2.27% $5000
3-Year Northwoods CU 1.81% $1000
2-Year Local FCU 1.75% $500

For a comprehensive list of deposit rates, refer to NerdWallet’s rates tool that lets you search for the best rates across over 7,000 depository institutions.

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 at 1.70%) is drastically different.

Action Yield Inflationary Effect Net Effect* Net Gain/Loss
1) None 0% -1.70% -1.70% -$334
2) Deposit in a Big Bank Savings Account .01% -1.70% -1.69% -$332
3) Invest in the Highest Rate CD Identified 2.85% -1.70% 1.13% +$226

*Net effect = (1+yield)/(1+inflation)

Trends

Options are limited when it comes to standard checking or savings accounts with high rates. This is unsurprising, since consumers generally pay for the ability to freely access their money at any time by forfeiting additional interest on the balances. Still, three credit union accounts – Citizens FCU, Genuine Parts CU, and Aflac FCU – rise above the competition at big banks and even online banks.

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.

Credit unions are also the institutions with the highest-yielding CD’s. 75% of the 1322 identified products with a rate greater than 1.70% were a credit union product. 25% (327) were not credit unions.

Does your bank or credit union offer an exceptionally high interest rate on a deposit account? Email us at rates@nerdwallet.com