MagnifyMoney 
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We know that inflation means the prices of goods and services are driven up over time. It’s why we can’t go see a movie for a mere nickel anymore. But how does inflation affect your savings accounts?
To find out, MagnifyMoney sifted through more than 12,600 personal savings accounts and 1-year certificates of deposit (CDs) to determine how many of these accounts beat out inflation. The results were underwhelming for savers, with very few savings accounts and CDs beating the rates of inflation at the time.
Comparing savings accounts to inflation indicates how much your money is actually worth after your pay interest. If interest is higher than inflation, your savings will buy more now than it could previously. Specifically, we looked at the following inflation measures from January 2020:
| Percentage of savings accounts and 1-Year CDs that beat inflation | ||
|---|---|---|
| Inflation Metric (Annual Rate) | Percentage of Savings Accounts With Higher Rates | Percentage of 1-Yr. CDs With Higher Rates |
| PCE (1.73%) | 1.2% | 19.9% |
| Core CPI (2.30%) | 0.1% | 0.5% |
| CPI-U All (2.50%) | 0.1% | 0.2% |
Source: Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve; MagnifyMoney analysis of bank and credit union deposit offers, January 2020.
On the whole, most banks and credit unions offer unremarkable interest rates on their deposit accounts, with little chance of beating inflation rates. The average savings account rate among over 7,200 savings accounts at banks and credit unions across the U.S. is only 0.27% APY. For CDs the news is a little better — the average 1-year CD rate among nearly 5,400 banks and credit unions is 1.13% APY.
Of the 7,227 savings accounts we looked at, a whopping 5,873 accounts earn between 0.01% and 0.25%. Half of these savings accounts yield a 0.15% APY or less — just as they did in 2019.
With inflation hovering at or around 2% — the Federal Reserve’s inflation goal — the majority of savings account holders won’t ever keep up with or beat inflation. And unless the interest paid on your savings account keeps up with the rate of inflation, the purchasing power of your savings will decrease over time.
Check out how the rest of the savings accounts performed below.
There was a much wider range of 1-year CD rates among the 5,382 1-year CD accounts we looked at. Half of the 1-year CDs we reviewed yield 1.21% or less annually.
The largest cohort of CD accounts (843) earned between 1.51% and 1.75% APY. Using the inflation measures listed above, this would marginally beat out only the PCE index, which clocked in at 1.73%.
If we assume a 2% inflation rate, 261 of these CD accounts would beat out inflation, allowing you to keep your money’s purchasing power. Still, in the real world, inflation is constantly fluctuating, which introduces some interest rate risk with relatively short-term accounts like a 1-year CD. For example, if you buy a 1-year CD at 2.50% now, but in the next year inflation climbs to 4%, your investment wouldn’t keep up.
In general, no matter which measure of inflation you use, only the banks and credit unions that consistently offer the best savings accounts and best CD rates will outperform the current rate of inflation. Consistency is key here since inflation is constantly fluctuating. Watch out for promotional or teaser rates that apply only for a certain amount of time or for select balances.
Here are some of the most consistently competitive savings accounts, which have maintained their high rates for the past two years:
Here are some of the best 1-year CD accounts, maintaining their competitive rates for the past two years:
MagnifyMoney pulled data from 7,227 personal savings accounts and 5,382 1-year CDs at banks and credit unions available in the U.S. We then compared these rates to three different measures of inflation to determine the percentage of savings products with annual percentage yields that are greater than that of inflation. We used the following inflation numbers from January 2020: the Consumer Price Index annualized rate of 2.50%, the Core CPI rate of 2.30% and the Personal Consumption Expenditure rate of 1.73%. Banks were surveyed in January 2020.
Lauren PerezLauren Perez is a former writer at MagnifyMoney who covered deposit accounts and Federal Reserve meetings. Prior to joining LendingTree, she was a personal finance writer for SmartAsset. She has a B.A. in English from the University of Rochester.
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