Bedford Federal Savings Bank
Financial Services
Real Rate of Return

 

 
 

 

The Real Rate of Return

 

The real rate of return is the annual percentage return realized on an investment after being adjusted for changes in prices due to inflation and/or taxes.  The nominal rate of return is the annual percentage return realized on an investment before being adjusted for inflation and taxes.

It is important for an investor to take taxes and inflation into consideration when making an investment decision.  Taxes and inflation are easily overlooked when making an investment because they are not disclosed and are often not discussed by whomever is offering the investment. 

The chart below does an excellent job of demonstrating "Real Rate of Return" and the effects that inflation and taxes have had on six-Month Certificate of Deposit (CD) investments over the last forty years.  It would have been very easy for an investor to have overlooked the devastating effects of taxes and inflation during many of those years and they might have realized a negative real rate of return.  This chart serves as a reminder that safety is not always in the shortest term fixed rate investment. 

 

 

 

 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 
 

 

 

 

 

 

 

  

 

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.  Insurance products offered through LPL Financial or its licensed affiliates.  Bedford Federal Savings Bank and Bedford Federal Financial Services are not registered broker/dealers and are not affiliated with LPL Financial.  The LPL Financial Registered Representative associated with this site may only discuss and/or transact securities business with residents of the following states: IN and FL.

Certificates of Deposit are FDIC insured and offer a fixed rate of return.  Alternative investments may or may not offer an equivalent degree of safety.  Alternative investments to CDs may fluctuate with market conditions, so that upon sale an investor may receive more or less than the original investment. 


 
Not FDIC Insured Not Bank Guaranteed May Lose Value
Not Insured by any Federal Government Agency Not a Bank Deposit

FINRA
SIPC

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