People who use certificates of deposit (CDs) to store their money tend to do so to avoid the risk associated with market-based assets, such as stocks and bonds. However, for long-term investors, CDs may present a different type of risk that can be just as harmful as market risk—the risk of 澳洲幸运5官方开奖结果体彩网:inflation. If the 澳洲幸运5官方开奖结果体彩网:return on an investment does not at least keep up with the rate of inflation, it will result in the loss of purchasing powe🍃r over the long term.

Currently, 澳洲幸运5官方开奖结果体彩网:rates on CDs exceed the 澳洲幸运5官方开奖结果体彩网:Consumer Price Index (CPI) rate, but this has not always been the case. CD rates tend to 𒊎tracꦦk the CPI, which should alleviate concerns over inflation risk. However, a closer examination of how inflation is measured may be a cause for concern if you’re worried about your actual purchasing power in the future.

CDs vs. CPI

As of March 2025, the 澳洲幸运5官方开奖结果体彩网:best one-year CD rates on the market were 4.60%, more than two times the average of 1.8%. The best five-year 澳洲幸运5官方开奖结果体彩网:jumbo CD rate was 4.55%. When comparing these rates to the CPI rate of 3% as of January 2025, this means that the rate of return on the best CDs is higher than the rate of inflation. However, this is not necessarily true for all CDs. When comparing the average CD return to the standard CPI rate, the opposite is true, as in this case the CPI rate outplaces the interest rate of an average CD.

CDs vs. Core CPI

The primary difference between the CPI and the Core CPI is that the core inflation doesn’t include oil and food prices due to high price volatility with these commodities. With oil and food prices factored in, the Core CPI stood at 3.3% in January 2025, still below the highest CD rates but well above the national average. While the CPI is the number that the government likes to report, most economists tend to track the Core CPI because it provides a more stable measure of inflation. If you apply the Core CPI to the CD-vs.-inflation equation, the best CDs are still comfortably aheadﷺ but not as much as when compared to standard CPI𒐪.

CDs vs. Lifestyle Inflation

🦂The inflation rate that should matter most to consumers and CD investors is what they actually feel in their wallets. Even when accounting for the price of food or energy, you may not feel the same effects 🌠of inflation as your neighbor if depending on your transportation and dietary habits and needs. Lifestyle inflation, which is driven largely by consumption habits, has the most direct impact on purchasing power. Since most people consume gas and food, it would be very difficult to keep your lifestyle inflation rate much below the Core CPI rate. For many people, it can be much higher.

CDs and Taxes

By and large, many CDs are able to keep up with inflation. However, your actual purchasing power is based on your income after taxes. The interest earned from CDs held outside of a qualified retirement plan is taxable as ordinary income, so the net return of CDs is reduced by your effe🌠ctive tax rate. If your effective tax rate is 25%, the net return of a CD yielding 4% is only 3%.

The Bottom Line

No matter which method you use to measure inflation, the after-tax return of the traditional CDs offering the highest rates is well above the rate of inflation. If you’re intent on investing in CDs due to a low 澳洲幸运5官方开奖结果体彩网:tolerance for risk, co💦nsider some CD products that can potentially boost your returns wiꦉthout sacrificing safety.

For example, 澳洲幸运5官方开奖结果体彩网:indexed CDs offer higher potential returns with the principal guarantees of a CD. Indexed CDs are linked to a market index, such as the S&P 500, which pays an interest rate that fluctuates with the market. The rate is usually capped on the upside; if the market index shows a loss, you’ll still receive a minimum interest rate. These are more complicated than traditional CDs, but they can offer safety-conscious investors the best of both worlds.