Impact of inflation and taxes on a fixed rate

MINT HILL, NC – With all this market volatility, have you thought, “Maybe I should put my money away in a safe, fixed-rate certificate of deposit (CD). In an uncertain economic environment, many consumers are looking for products like this. While benefits like short terms and a guaranteed interest rate can be attractive, two often overlooked factors can negatively impact a conservative fixed rate: taxes and inflation.

Many of us don’t think about the “real rate” of return, which has a major impact on fixed income vehicles. For example, in 2021, the average six-month CD rate was 0.09%. The lowest since 2000! Hypothetically, if we use the top marginal federal tax rate based on $100,000 of taxable income for a married couple filing jointly at 22%, along with inflation, the actual return on this CD would be -6, 93%. This may seem drastic, and keep in mind that the assumed tax rate will not apply to everyone. This example gives you a good idea of ​​how things work though.

At Fulcrum, we take the time to dig deeper and educate our customers. What suits one client may not suit you.

Let us help you find your clarity of purpose!

This article was written by Sammons Retirement Solutions for your local Cambridge Investment Research financial advisor.

To discuss further, please contact me at (704) 817-4480 Option 2, or by email at [email protected]

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