Dear Dr. Don,
If you put $29,000 into the bank 18 years ago, either in a CD or a savings account, how much is it worth now?
-- Sally Savings
Dear Sally,
It depends on the rate the investment earned over the 18-year time period. The difference between an average passbook savings rate and a series of CD investments would be quite substantial, as shown in the graphic below.
I used Federal Reserve data for average annual rates on a six-month CD over the past 18 years and estimated that $29,000 invested 18 years ago would be worth $65,319 today.
But that number doesn't subtract out the federal income tax due on the interest earnings. If we subtract out projected income taxes, that amount is reduced to approximately $54,391 -- assuming a 23 percent marginal federal income-tax bracket. State and local income taxes would reduce that number further.
Historical chart of savings rates: 1987 to 2006
You can use Bankrate's "Certificate of deposit calculator" to input an interest rate and a term to compute the value today based on an interest rate. The calculator only goes out 120 months, or 10 years, so you have to take the result from 10 years investing and use it as your initial deposit, then calculate its interest earnings for another 96 months.
It's also interesting to see what's happened to that money's purchasing power over 18 years. The Bureau of Labor Statistics, or BLS, has an inflation calculator that calculates it takes $47,378.06 of today's dollars to have the same purchasing power the $29,000 had in 1990.
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