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Are Your CDs/Investments Keeping Up With Inflation?

Monday, June 25, 2012 - 8:59 PMAlly Bank - Details
The short answer of course is likely NO!  The more interesting view is
how bad/good are they doing.  One rough measure of this is to look at
the EPI's Purchasing Power Conversion Table located near the midpoint
in "The EPI Reflects Basic Economic Change" document.

For example, if you bought a $10K CD in 2007 how much would it have to
have earned to keep pace with inflation?  Via the table the answer, as
of 2011, = $10,000 * 1.0846 = $10,846; ie., 8.46%

Right, where in the world could you have found an 8.46% CD in 2007!

For me the big picture is I redeemed or renewed:
 6 CDs in 2007 with all earning < the 8.46% inflation number - ouch;
18 CDs in 2008  "   15     "      >  "  4.44%     "       "    - a good year;
14 CDs in 2009  "     5     "      >  "  4.82%     "       "    - a bad year;
15 CDs in 2010  "     7     "      >  "  3.13%     "       "    - mixed year.

So how bad/good does your CD portfolio measure up?
cumuluscumulus297 posts since
Jan 16, 2010
Rep Points: 1,370
1. Tuesday, June 26, 2012 - 4:30 AM
That is a useful table. It should be noted that the EPI stands for Everyday Price Index, and it's a more useful index to track inflation. I have more details here.

When you use the table, don't forget that the numbers are cummulative. The CD rates that we compare are annualized. So a 2007 5-year CD with a 5% APY would grow more than 5% from 2007 to 2011. Ignoring taxes, its growth can be calculated as follows:

1.05*1.05*1.05*1.05 = 1.2155

So those 5% and 6% CDs that we got back in 2007 have done well. Unfortunately, for today's CD rates we will need much lower inflation to remain ahead of inflation.
Ken TuminKen Tumin5,441 posts since
Nov 29, 2009
Rep Points: 123,675
2. Tuesday, June 26, 2012 - 9:50 AM
I ignore such ads and all "inflation" scares when it comes to how much I am making or not making on CD interest.  I need so much income to survive and "I" know how to live (the dirty word) "frugally" so as long as I can still get the income necessary for MY family's survival, I could care less about the "Inflation" scares.  You want to beat inflation, learn to follow the info earlier posted for frugal living. There are ways to beat inflation when rates are low but we don't need to fight over that again.
paoli2paoli21,140 posts since
Aug 10, 2011
Rep Points: 5,083