{"id":1347,"date":"2025-04-19T03:35:45","date_gmt":"2025-04-19T03:35:45","guid":{"rendered":"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/?post_type=newsletter&#038;p=1347"},"modified":"2025-04-19T03:36:38","modified_gmt":"2025-04-19T03:36:38","slug":"whats-your-real-return","status":"publish","type":"newsletter","link":"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/newsletter\/whats-your-real-return\/","title":{"rendered":"What\u2019s Your Real Return?"},"content":{"rendered":"<p>Let\u2019s say you want to purchase a bank-issued certificate of deposit (CD), because you like the lower risk and fixed interest rate that a CD can offer. CD rates rose substantially with the Federal Reserve\u2019s aggressive increases in the federal funds rate but began to decline with the Fed&#8217;s first rate cut in September 2024. Just as an example, let&#8217;s say you find a CD that offers 5% annual interest. That could be attractive. However, if you\u2019re taxed at the 22% federal income tax rate, 1.1% will be gobbled up by federal income tax on the interest.<\/p>\n<p>That still leaves an interest rate of 3.9%, but you should consider the purchasing power of the interest. After hitting 40-year highs in 2021 and 2022, inflation has slowed and was down to 2.5% as of August 2024 (see chart). But a 2.5% inflation rate would leave a real return of just 1.4%. And as the Fed lowers the benchmark federal funds rate in response to lower inflation, rates on CDs and other fixed-income investments are likely to decline, reducing the real return on future CD and fixed-income purchases.<\/p>\n<p>This hypothetical example doesn\u2019t represent the performance of any specific investment, but it illustrates the importance of understanding what you\u2019re actually earning after taxes and inflation. In some cases, the lower risk offered by an investment may be appealing enough that you\u2019re willing to accept a low real return. However, pursuing long-term goals such as retirement generally requires having some investments with the potential for higher returns, even if they carry a higher degree of risk.<\/p>\n<hr \/>\n<h2>Eroding Purchasing Power<\/h2>\n<p>Annual rate of inflation, based on change in the Consumer Price Index<\/p>\n<figure id=\"attachment_1349\" aria-describedby=\"caption-attachment-1349\" style=\"width: 661px\" class=\"wp-caption aligncenter\"><img fetchpriority=\"high\" decoding=\"async\" class=\"wp-image-1349 size-full\" src=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/wp-content\/uploads\/2025\/04\/WA_24106_Whats-Your-Real-Return-CHART-2-e1745033727818.jpg\" alt=\"Annual rate of inflation, based on CPI: 2015 = 0.7%, 2016 = 2.1%, 2017 = 2.1%, 2018 = 1.9%, 2019 = 2.3%, 2020 = 1.4%, 2021 = 7.0%, 2022 = 6.5%, 2023 = 3.4%, 2024 (through August) = 2.5%.\" width=\"661\" height=\"244\" srcset=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/wp-content\/uploads\/2025\/04\/WA_24106_Whats-Your-Real-Return-CHART-2-e1745033727818.jpg 661w, https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/wp-content\/uploads\/2025\/04\/WA_24106_Whats-Your-Real-Return-CHART-2-e1745033727818-300x111.jpg 300w\" sizes=\"(max-width: 661px) 100vw, 661px\" \/><figcaption id=\"caption-attachment-1349\" class=\"wp-caption-text\">Source: U.S. Bureau of Labor Statistics, 2024<\/figcaption><\/figure>\n<hr \/>\n<p><em>The FDIC insures CDs and bank savings accounts, which generally provide a fixed rate of return, up to $250,000 per depositor, per insured institution. All investments are subject to risk, including the possible loss of principal. When sold, investments may be worth more or less than the original cost.<\/em><\/p>\n<p>This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. \u00a9 2024 Broadridge Financial Solutions, Inc.<\/p>\n","protected":false},"featured_media":1348,"template":"","meta":{"_acf_changed":false},"newsletter-category":[31],"class_list":["post-1347","newsletter","type-newsletter","status-publish","has-post-thumbnail","hentry","newsletter-category-october"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.3.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What\u2019s Your Real Return? - New England Trust<\/title>\n<meta name=\"description\" content=\"In Evanston, IL, Robard Flaremoor offers Financial Planning Services &amp; Financial Advice. \u2018Financial Services\u2019 from College Funding to Wealth Protection. \u2018Tax Services\u2019 include Tax Preparation, Tax Reduction, and Tax Management\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/newsletter\/whats-your-real-return\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What\u2019s Your Real Return? 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