The Hidden Threat: Inflation and Taxes

Many people believe they’re playing it safe by keeping their money in bank CDs or money market funds. But this safety is often an illusion. Consider a $100,000 five-year bank CD paying 1.35% annually – the FDIC national average five-year CD rate as of April 2026. At that rate, you earn $1,350 in interest. But because interest is taxable, and assuming a combined federal and state tax rate of 30%, you lose roughly 0.41% to taxes, leaving you with a net return of just 0.94%. 

Then inflation enters the picture. Inflation has historically averaged about 3% per year since 1926. Even at the relatively modest average of 2.3% since 2005, inflation erodes purchasing power faster than a 0.94% return can offset it. The result: you’re actually losing money in real terms, even while your balance nominally grows. 

This is the hidden risk that affects people who know the least about investing: those who try to protect themselves by avoiding risk are often quietly losing ground to inflation and taxes every single year. Risk comes in many forms, and the risk of doing nothing is just as real as the risk of market volatility.