Financial Expert: Why 3% Inflation Still Hurts Your Savings

Inflation Impact on Savings and Investments - The Federal Reserve aims to maintain inflation around 2%, but current inflation is leaning toward 3%, negatively impacting savings and investments [1][2] - Inflation erodes the "real return" on investments, meaning that even positive nominal returns can result in negative real returns when accounting for taxes and inflation [3][5] - At 3% inflation, $10,000 loses nearly $300 in purchasing power annually, highlighting the significant impact of even small inflation rates [3] Financial Products and Returns - High-yield savings accounts (HYSAs) and certificates of deposit (CDs) often fail to provide returns that outpace inflation, especially when inflation spikes [4] - It is crucial to compare after-tax, after-inflation real returns when evaluating savings and investments, particularly for retirees who need to sustain purchasing power over time [5] Wage Adjustments and Inflation - Companies may not provide raises that keep pace with inflation, and some do not offer annual raises at all [6] - Employees are encouraged to negotiate pay adjustments based on the consumer price index (CPI) to ensure income aligns with inflation [6]