The Impact of Inflation on Savings and CD Rates
When inflation rises, it tends to increase interest rates on savings accounts and certificates of deposit (CDs), which can result in higher earnings for savers. However, when inflation falls, the opposite occurs, leading to lower interest rates and potentially eroding the purchasing power of savings balances. The Federal Reserve's actions, such as adjusting federal funds rates, also influence banks' decisions to change their deposit rates.
- Inflation can have a significant impact on consumer spending habits, particularly for households living on fixed incomes or with limited financial flexibility.
- How will individuals and policymakers address the increasing wealth disparities that may arise from inflation-driven interest rate changes in the long-term?