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taxes, inflation, and interest

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Money Talk > Taxes

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dphipps
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taxes, inflation, and interest  Reply with quote  

I have a savings acount where I get 3.8% APY in interest. However, I saw somethere else that inflation is about 3.4% which would mean that I am only earning about 0.4%. My question is sence I am not earning any money from my interest do I still have to pay taxes on it?
Post Wed Feb 08, 2006 7:56 pm
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Jaszbo
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Yes, you are paying taxes on intrest being made on your savings. Savings is just that, it holds your money, but doesn't really make you any money when inflation and taxes are taken into consideration. Actually you are paying more taxes than if you had a long term (366 days) investment. You could pay 15% versus 25% if you are in the 25% tax bracket.

Inflation is monthly, so some months last year it was over 4%, but on average 2005 I believe was 3.39%. If you want to have a savings that just holds your money, becuase remember it's not an investment, look for something much higher like emigrantdirect at 4.25%
look at ingdirect and hsbcdirect also and you want to go with the highest rate. All savings does it keep your money safe(holding), but if you're looking at making money look at other accounts.
Post Thu Feb 09, 2006 2:53 pm
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DollarSteward
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Re: taxes, inflation, and interest  Reply with quote  

Unfortunately, there's no tax deduction for inflation.
Post Thu Feb 09, 2006 6:11 pm
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coaster
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Ha ha ... wouldn't it be great if there was a deduction for inflation!! Laughing

Unfortunately, between inflation AND taxes on the interest, the value of the money is losing ground each year. If you want to assume inflation is 3.4%, then you need to earn 4.5% just to break even considering both inflation and taxes (assuming a 25% marginal tax rate -- your tax rate may vary.)

~Tim~
Post Thu Feb 09, 2006 8:43 pm
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