A quoted rate is not the same as an after-tax, inflation-adjusted gain. If a hypothetical savings account pays 5% for a year, a hypothetical 25% tax on its interest and 3% inflation leave about 0.73% real gain in this simplified one-year example. The 5%, 25% and 3% are inputs for learning, not claims about a current bank, your tax rate or the latest CPI.
Correction — September 24, 2026: The previous article treated named banks’ 5% APYs, a 2.5% inflation estimate, cross-country rates and investment returns as if they were current or typical without checking the necessary dates or conditions. It also gave the 2025 employee 401(k) limit of $23,500 as a 2026 limit; the IRS says $24,500 for 2026. We removed those market claims, asset rankings and obsolete image cards. The worked example below is deliberately hypothetical, not personalized financial or tax advice.
Follow the dollars before the percentages
Start with $10,000 in a savings account. Assume a 5% one-year APY, the same balance for the full year, no fees or additional deposits, and a simplified 25% tax applied only to the $500 interest. Then assume prices rise 3% over that same year. The IRS says bank interest is generally taxable; your actual federal, state and other tax treatment may differ.
| Step | Calculation | Result |
|---|---|---|
| Starting cash | Given | $10,000.00 |
| Nominal interest | $10,000 × 5% | $500.00 |
| Illustrative tax on interest | $500 × 25% | $125.00 |
| After-tax ending dollars | $10,000 + $500 − $125 | $10,375.00 |
| Purchasing power in starting-year dollars | $10,375 ÷ 1.03 | $10,072.82 |
The after-tax nominal rate is $375 ÷ $10,000 = 3.75%. The exact real-rate calculation is (1.0375 ÷ 1.03) − 1 = 0.728%, or about 0.73%. The quick subtraction 3.75% − 3% = 0.75% is close here but not exact. SEC Investor.gov defines real return after taxes and inflation; BLS describes the price-index ratio used to convert nominal dollars into purchasing power.
Change one assumption and the answer changes
- Bank rate: An advertised APY can change and account terms can differ. This page does not assert that a 5% offer exists now.
- Tax: The illustration taxes only the interest at a single assumed rate. It is not a tax-return calculation and does not handle all federal/state interactions or tax-exempt products.
- Inflation: The 3% input is not a forecast. To assess a completed period, use the BLS CPI data and matching dates. Your spending mix may differ from the CPI basket.
- Time: One-year rates do not remain constant for decades. Repeating 5% or 3% indefinitely would create a scenario, not an expected outcome.
A negative real result means the final dollars buy less of the chosen price basket than the starting dollars, even if the bank balance rose. A positive one-year result does not prove that a savings account or investment is best for every goal. Liquidity, insurance coverage, taxes, risk and time horizon also matter.
What PiPi’s interest calculator can show
Calculator correction — October 13, 2026: The earlier warning that this tool might not reproduce the $10,500 balance is out of date. The current English savings calculator accepts APY, which already reflects compounding under the CFPB definition. It converts that APY to an equivalent monthly rate; it does not add monthly compounding a second time.
Reproduce the example, one input at a time
Open PiPi’s interest tool and select Savings (HYSA / CD / MMA). Use only these hypothetical numbers, not private account details: inputs appear in the page URL.
- Set Principal / Lump sum to 10000, Monthly contribution to 0, APY (%) to 5, and Term (months) to 12. In particular, replace the default monthly contribution; leaving it in place changes the example.
- Leave After-tax off. Balance before modeled tax should read $10,500.00 and Total interest $500.00.
- Turn After-tax on. Enter 25 for Federal marginal (%) and 0 for State marginal (%). These are arithmetic assumptions, not a claim that 25% is your tax bracket. The tool shows Modeled tax: $125.00, After-tax interest: $375.00, and Balance after modeled tax: $10,375.00.
- To finish the purchasing-power calculation, divide 10375 by 1.03 separately. That gives $10,072.82 in starting-year dollars. Compare this with the original $10,000, not the nominal ending balance:
(10375 / 1.03 / 10000 - 1) × 100 ≈ 0.73%.
Use the right result. The schedule and CSV remain before modeled tax; their final balance is $10,500 in this example, not $10,375. The tool applies its simplified tax estimate to accumulated interest at the end. It does not model annual tax payments, fetch a live bank offer or CPI, calculate your actual tax bill, or display your inflation-adjusted return. A multi-year tax-payment scenario needs a different model.
Check scope: this handoff was reproduced in the operating browser on October 13, 2026 and checked against the calculation code. The original source-review dates have not all been refreshed; this is not a new review of every tax or retirement rule in the article.
Retirement wrappers such as a 401(k), Roth IRA or HSA have different tax and withdrawal rules, but the account wrapper does not guarantee an investment return. The removed article ranked them by invented fixed real returns; that is not a sound comparison. If you need account contribution limits, see the separately corrected 2026 account guide and the official IRS source. For a decision affecting substantial savings, use actual account terms and qualified advice rather than the assumed rates on this page.