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

by on November 15, 2012

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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 – November 2012

Latest CPI Release: November 15, 2012 (for October 2012 statistics)

12-Month Inflation Rate: 2.20%

Options look dismal right now for savers attempting to earn a respectable return on their hard-earned cash. Only CDs are currently able to stand strong against inflation. And even so, the rates are not spectacular. Money market accounts offer more liquidity than a certificate of deposit, however they often require higher minimum balances and can’t quite compete with CD rates. Even the best savings accounts continue to yield  less than 1% APY.

For lower balances, some may try a rewards checking account. They require more active use to earn the highest rates, but most are free accounts regardless of qualifying for the bonus rate, so the downside is small. The All Access Advantage account at La Capitol Federal Credit Union (Louisiana), for example, pays 4.25% on balances up to $5000 (over $200/year). However it requires 25 non-ATM debit card transactions per month to earn that rate, otherwise a smaller 0.15% APY applies. If you typically make many debit card purchases each month, than an account like this can help ease the pain of low interest rates.

Select deposit accounts that beat inflation:

Time-Deposits (CDs)

Term Institution State APY Min
30 months Navy Army Community CU TX 3.00% $1,000
 5 years Charles St. Community FCU  IN 2.58% $500
 5 years Encompass CU  IN 2.53% $500
5 years SeaComm FCU NY  2.49% $1,000
 5 years Birmingham Police CU AL 2.38% $1,000

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 interest rates 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
1) None 0% -2.20% -2.20% -$431
2) Deposit in a Big Bank Savings Account .01% -2.20% -2.19% -$429
3) Invest in the Highest Rate CD Identified 3.00% -2.20% +0.78% +$157

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

Trends

Hardly any accounts are keeping up with inflation (NerdWallet identified just 27 non-promotional accounts with yields above current inflation).  The 12-month CPI increase rose to 2.20% this month, up from 2.00% reported last month, 1.70% in September and 1.40% in August. The rate of increase has been deteriorating, however consumers still have to worry about the lack of deposit rate boosts. NerdWallet’s weekly CD rates index has shown hardly any change (and in some cases declines) in the average rate available to savers.

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 rates@nerdwallet.com

Unsure where to keep your savings?
Use our tool to find the best CD rates.
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