Ever noticed those attractive savings rates posted outside banks lately? It’s no secret that rates have skyrocketed, reaching 5% for some high-yield accounts. This wave extends to other products like CDs and money market funds, especially with the Federal Reserve pushing interest rates to peaks not seen in two decades.
However, it’s essential to look deeper.
Lauren Goodwin, a top economist, suggests that if yields appear more tempting, it could be due to escalating inflation. Consider this: the last year saw consumer prices rise at a pace not witnessed since the iconic 80s, leading to the dollar’s diminished value. Banks are upping their game with these returns to retain their clientele.
A brief trip down memory lane: A 2021 “high-yield” savings account with a $1,000 deposit gave just 0.7% in yearly interest. Fast forward to 2023, and thanks to the Federal Reserve’s adjustments against inflation, the rate zoomed to 5%. But there’s a twist. Even after interest, the purchasing power of that amount fell drastically.
Looking to figure out how inflation impacts various investment strategies? [Jump into this simulator and get the lowdown.]
