Rates Current as of Friday February 10, 2012

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How does inflation affect my bank accounts?

Since there are several different types of bank accounts, inflation will have varying degrees of impact on them. Inflation erodes the value of our money. Higher inflation leads to a greater amount of funds needed to purchase consumer goods. As goods become more expensive we need our investment rates of return to be over and above the rising costs we are experiencing. An investment with a long term that pays a fixed amount will now become much less valuable since the rate of return it pays will most likely not keep up with inflation. Short term accounts that are used primarily for paying bills should be impacted the least. These accounts pay very little interest and the rates paid on these accounts are set frequently and are less likely to be eroded by rising prices and fixed rates of returns. Long term investments with fixed rates of return will impacted the most. The bank is not likely to voluntarily reset the rates on five-year certificate of deposit if after the third year inflation has risen to over five percent or more. The best strategy is one of diligence. Track your investments and their returns and watch for market changes in inflation and ant rate changes made at financial institutions.

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