Author: Armen Grigorian, Managing Partner, Redmount Capital Partners LLC
For many investors, bank deposits have long represented the “safe” choice — a place to park cash and earn a steady return. But safety often comes with a silent cost: inflation.
The charts and tables below compare 3-Month CD rates and U.S. inflation from 2006 through 2025. Over this 20-year period, short-term deposit rates lagged behind inflation for much of the time, particularly between 2010 and 2022, when rates hovered near zero. Even after the recent surge in interest rates, the cumulative real return on CDs remains negative 16.8%, meaning purchasing power declined despite nominal gains.
We are seeing an illustration of a core investing principle: avoiding volatility doesn’t eliminate risk — it often transforms it into purchasing power erosion.
Periods like 2006–2007 and 2023–2025 show that positive real yields can return, but timing and discipline matter. Long-term wealth preservation depends on a balanced approach — combining liquidity for stability, and productive assets for growth.
In an environment where inflation remains unpredictable, the question for investors is no longer “How safe is my cash?” but rather “How much is safety costing me?”
Even with the sharp rate increases that began in 2022, the cumulative picture remains negative, around –16.8% as of 2025. The reality is that while the nominal value of savings rose slightly, inflation consistently outpaced returns, quietly eroding long-term wealth.
The final chart below shows that 16.8% of capital has been destroyed by inflation and not reimbursed by bank deposits.
Looking ahead, with inflation still above the Federal Reserve’s long-term target and real rates only modestly positive, investors face a familiar challenge: balancing liquidity, return, and risk. Holding some cash is rational — for flexibility and opportunity — but overexposure to short-term deposits remains costly in real terms.
The past two decades are a reminder that capital preservation is not just about avoiding loss — it’s about preserving purchasing power. Safety, when overused, can quietly become the riskiest strategy of all.
| Year | 3-Month CD Rate (%) | Inflation Rate (%) | Difference % | Cumulative % |
| 2006 | 4.9% | 3.2% | 1.7% | 1.7% |
| 2007 | 5.2% | 2.9% | 2.3% | 3.9% |
| 2008 | 2.9% | 3.8% | -0.9% | 3.0% |
| 2009 | 0.4% | -0.4% | 0.8% | 3.8% |
| 2010 | 0.3% | 1.6% | -1.4% | 2.4% |
| 2011 | 0.3% | 3.2% | -2.9% | -0.5% |
| 2012 | 0.5% | 2.1% | -1.7% | -2.2% |
| 2013 | 0.6% | 1.5% | -0.9% | -3.1% |
| 2014 | 0.8% | 1.6% | -0.8% | -3.9% |
| 2015 | 0.3% | 0.1% | 0.2% | -3.7% |
| 2016 | 0.3% | 1.3% | -1.0% | -4.7% |
| 2017 | 0.5% | 2.1% | -1.6% | -6.3% |
| 2018 | 0.4% | 1.9% | -1.6% | -7.9% |
| 2019 | 0.3% | 2.3% | -2.1% | -9.9% |
| 2020 | 0.2% | 4.7% | -4.5% | -14.4% |
| 2021 | 0.3% | 8.0% | -7.8% | -22.2% |
| 2022 | 3.1% | 4.1% | -1.0% | -23.2% |
| 2023 | 5.4% | 3.2% | 2.2% | -21.0% |
| 2024 | 5.3% | 3.0% | 2.3% | -18.8% |
| 2025 | 5.2% | 3.2% | 2.0% | -16.8% |
Sources: Money Market Fund Yield (MMTY): Federal Reserve Bank of St. Louis (FRED) FRED. Inflation Rate (CPI): U.S. Bureau of Labor Statistics (BLS). Bank Deposit Rates: Federal Deposit Insurance Corporation (FDIC) FRED