🎯 In 30 seconds: Your real return is roughly your interest rate minus inflation, after tax. If that number is below zero, your balance grows but buys less each year. Cash still has a job (safety and access), but it helps to know whether it is keeping up.
Nominal vs real
The rate a bank quotes is the nominal rate. Inflation is how fast prices rise. The real rate is what is left for buying power.
| Quick version | Real return ≈ your after-tax rate minus inflation |
| Exact version | (1 + after-tax rate) ÷ (1 + inflation) − 1 |
At low rates the two versions give nearly the same answer, so the quick version is fine for comparing.
Worked example
Say a savings account pays a 4.00% APY, you are in the 22% federal bracket for 2026, your state has no income tax, and inflation over the year is 3.0%.
| Step | Math | Result |
|---|---|---|
| Rate quoted | 4.00% | |
| After federal tax | 4.00% × (1 − 0.22) | 3.12% |
| Minus inflation | 3.12% − 3.0% | about 0.12% |
That account is roughly breaking even on buying power. Now compare money left in a checking account paying close to nothing. $10,000 sitting there for 10 years while prices rise 3% a year will still read $10,000 on the statement, but it will buy about what $7,441 buys today.
The Rule of 72 for prices
Divide 72 by a yearly percentage to estimate how many years it takes for something to double. It works for prices too: it tells you how long until the same basket of groceries costs twice as much.
| Inflation per year | Prices roughly double in |
|---|---|
| 2% | 36 years |
| 3% | 24 years |
| 4% | 18 years |
| 6% | 12 years |
Run it on your own rate as well. Money earning 3.12% after tax doubles in about 23 years, almost exactly the pace prices double at 3% inflation. That is what “breaking even” looks like over a long stretch.
Where to find the inflation number
The Bureau of Labor Statistics publishes the Consumer Price Index (CPI) every month. The headline people quote is the change over the past 12 months, shown in the summary of the latest release on the BLS CPI page. Your own inflation can differ: a household that rents in a fast-rising city or drives a lot feels different numbers than the average.
Two savings products adjust for CPI directly: I bonds and TIPS. Their current terms are on Today’s Rates.
When cash is losing, and when that is fine
Signs your cash is falling behind:
- It sits in an account paying far less than the best insured rates.
- Your after-tax rate is below the latest 12-month CPI change.
- It is money you will not need for many years, so short-term safety is not the point.
Losing a little to inflation can still be the right trade for an emergency fund, because the goal there is being able to get the money on a bad day, not growth. Money for goals 5 or more years away is where people commonly look beyond cash. Emergency Fund and Investing 101 cover both sides.