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Yahoo
12-03-2025
- Business
- Yahoo
Here's How Inflation Impacts Your Bank Account (And How To Take Advantage)
Inflation isn't just a buzzword — it has real effects on your finances, from the interest rates on loans to the value of your savings. Find Out: Read Next: While rising prices can feel like a financial setback, they also create opportunities to make smarter money moves. Whether it's adjusting where you store your cash, locking in favorable loan terms or investing in inflation-resistant assets, understanding how inflation impacts your bank account can help you stay ahead. Here's how to navigate inflation's challenges — and take advantage of its silver linings. When inflation rises, banks and other financial institutions also tend to raise interest rates, making it more difficult for borrowers to take out loans, whether those be personal or business loans, according to Jim Pendergast, general manager of altLINE by The Southern Bank. However, he said it is important to note that inflation isn't the only factor determining rates. 'Overall supply and demand, each individual financial institution's liquidity, and customer risk can play a role as well.' Learn More: Higher interest rates and inflation can shrink your wealth if you're keeping it in a regular savings account, Pendergast said. 'If inflation is higher than what your savings account earns, which can be common in an economy like this, your returns would be net-negative.' While in theory, wages should also go up when inflation does, that doesn't always occur. If you are stashing cash in a conventional bank account, such as a checking or savings, the chances are that you're earning a negative return on that cash due to the rate of inflation 'exceeding the miniscule interest rate that your bank account pays you,' according to Vince DeCrow, founder of RISE Investments. Inflation, as measured by the consumer price index (CPI), is currently running at 3.0% on a year-over-year basis. So, if you're earning a 0.05% interest rate on the cash you have in your savings account, the purchasing power of your cash is actually shrinking by the day, DeCrow pointed out. 'That is because the cost of goods, measured by CPI, are currently rising at a rate of 3% a year while your money is only growing at 0.05% a year.' DeCrow said that some good alternatives to reverse this inflationary trend and grow your purchasing power without putting your money at significant risk are: A high yield savings account currently paying around 3.5% to 4.0% A money market fund currently paying around 4.2% A Treasury inflation-protected securities (TIPS) fund where the value of a TIPS fund goes up when CPI rises, resulting in increased coupon payments to the investor While inflation can be problematic, it can also be beneficial, according to Sara Levy-Lambert, head of growth at RedAwning. Consumers can lock in long-term, fixed-rate loans before rates go up further and invest in sectors that do well with prices rising. 'Locking in a low fixed-rate mortgage, on the other hand, can protect you from future cost escalations, and some sectors of equity may benefit from nominal gains,' she said. In addition, retooling your budget is essential during inflation to make sure your spending is in step with shifting economic conditions, Levy-Lambert said. This can look like rebalancing your financial priorities by shifting income toward yield-type investments of higher return or cutting back on discretionary expenses. Steps like this can insulate your purchasing power rewards from the ravages of inflation, she said. More From GOBankingRatesHow Paychecks Would Look in Each State If Trump Dropped Federal Income TaxI'm a Retired Boomer: 6 Bills I Canceled This Year That Were a Waste of Money This article originally appeared on Here's How Inflation Impacts Your Bank Account (And How To Take Advantage)
Yahoo
09-03-2025
- Business
- Yahoo
Trump Wants To Eliminate Income Taxes: 7 Ways That Could Impact Your Job Search in 2025
It sounds wonderful — no more income taxes sapping your paycheck. And it could be, depending on what replaced them. 'Individual income taxes make up roughly 50% of the federal government's revenue today,' said Vince DeCrow, founder of RISE Investments. So if the federal government didn't collect individual income taxes, it would have to replace that revenue from other sources. And how could it do that? Read Next: Find Out: Two obvious places include tariffs and higher corporate taxes, which raises plenty of implications for labor markets and job searches in 2025. Here are some ways that eliminating income taxes could impact your job search. Also see 10 major benefits to Americans if Trump ends income taxes, according to GOBankingRates' president. Let's start simple. If President Trump waved a magic wand and income taxes disappeared tomorrow, Americans would have more take-home pay to spend. 'When workers keep more of their funds to live life, it drives growth in all segments of our economy,' explained Hillary Seiler, personal finance expert at Financial Footwork Inc. 'That means more jobs, more opportunities and a stronger economy.' Granted, some of that extra money could get hoovered up by higher-cost goods if tariffs inflate prices on some products. But some extra spending juice would likely get through to the economy at large, making for more jobs available. Discover More: Americans would also likely spend more on discretionary purchases if they felt flush with cash after dropping the expense of income taxes. 'That alone could drive a significant spike in discretionary spending,' DeCrow said. 'It would especially benefit the entertainment, hospitality and travel industries.' That, in turn, would likely mean more jobs in these industries. Plus, these will likely be jobs that can't necessarily be replaced by an artificial intelligence algorithm, such as massage therapy and other spa treatments, wait staff at upscale restaurants, and human tour guides. When people have more money to spend, they bid up home prices. Seiler pointed to states like Florida and Texas that have attracted many new residents over the last decade by touting their lack of income taxes. 'When demand explodes, so do costs. Housing prices have gone up exponentially,' she said. That works out fine for existing homeowners, but it doesn't make it any easier for first-time buyers to get a foot in the door. Still, a thriving Are You Rich or Middle Class? 8 Ways To Tell That Go Beyond Your Paycheck market can create a massive number of jobs. Consider all the subindustries in 10 Genius Things Warren Buffett Says To Do With Your Money: homebuilding, 7 Luxury SUVs That Will Become Affordable in 2025 sales, appraisals, home inspections, title companies, property management, repair and renovation contracting, home decor and furniture, and more. Every major economic change creates winners and losers. Personal income tax preparers and support services, such as accountants and software sellers, fall into the latter category. If no one needs to file individual income tax Warren Buffett: 10 Things Poor People Waste Money On anymore, that would slash demand for accountants. The country will still need CPAs but largely to work on corporate tax 3 Reasons Retired Boomers Shouldn't Give Their Kids a Living Inheritance. The upshot? There would be too many CPAs and not enough work, so many would likely find new careers. Right now, every American has to file a tax return. But if only businesses had to file tax I'm a Retired Boomer: 6 Bills I Canceled This Year That Were a Waste of Money, it would create a disincentive for self-employment. Gig workers paid as 1099 contractors may not be immune, either. They would theoretically still owe FICA taxes to fund Social Security and Medicare. That means they'd still have to file a tax return — unlike W-2 employees. Unless the government put that burden on contract workers' employers, that is. Lucas Barcelo, finance and insurance expert at Thrivin, pointed out that could make freelance work even more attractive. 'Today, many people feel intimidated by tracking their own self-employment income and write-offs. No self-employment tax worries would alleviate those concerns and allow freedom to work how and where you want.' Today, 43 states charge income taxes. While they do require that you file a state tax return, these mostly piggyback on your federal tax return. If the federal income tax return disappeared and states still required residents to file tax 8 Common Mistakes Retirees Make With Their Social Security Checks, it would create a huge incentive to move to a state with no income taxes. Knowing that, many (if not all) states might explore ditching income taxes as well. They could simply raise rates on property taxes and excise taxes. DeCrow pointed out that such a leveling of the tax playing field might send some transplants moving back home. 'Many residents who moved to an income tax-free state may move back to their prior home states in the Northeast and Midwest to be able to spend more time with their families or parents,' he said. Some employers offer benefits specifically with taxes in mind, such as 401(k) plans. If individual income taxes disappeared, companies might rethink which benefits to offer. And employees may demand different benefits than they do today. 'Employees focus on benefits that support their goals,' explained Aaron Razon, budgeting and personal finance expert at CouponSnake. 'Without taxes to worry about, employees might focus more on comprehensive health insurance, paid time off, childcare benefits, flexible hours and remote work.' Ultimately, it's hard to imagine the federal government eliminating income taxes. But if it somehow pulled it off, the effects across the job market would ripple across every industry and worker — both for good and ill. Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on More From GOBankingRatesMark Cuban Wants To Reshape Healthcare -- 5 Ways His Approach Could Save Americans Money6 Hybrid Vehicles To Stay Away From in Retirement This article originally appeared on Trump Wants To Eliminate Income Taxes: 7 Ways That Could Impact Your Job Search in 2025 Sign in to access your portfolio
