How does the calculator get from a nominal balance to real value?
It runs three versions of the same plan. The nominal future value grows your initial deposit and monthly contributions at the full annual return, compounded monthly. This is the number most savings projections show.
The after-tax future value repeats the projection at a lower rate: the annual return multiplied by one minus your tax rate. Treating tax as a flat cut to the return is a simplification, but it captures the key effect, which is that money paid in tax each year can no longer compound.
Real value divides the after-tax balance by (1 + inflation) raised to the number of years, converting future dollars into today's purchasing power. Purchasing power lost is the after-tax balance minus that real value.
After-tax return = r × (1 − tax rate) FV = P × (1 + i)^N + C × ((1 + i)^N − 1) ÷ i, with i = return ÷ 12 Real value = after-tax FV ÷ (1 + inflation)^years
- r
- annual return before tax
- P
- initial deposit
- C
- monthly contribution
- N
- number of months
- i
- monthly rate for the scenario being calculated
Example: $10,000 plus $200 a month for 20 years
Scenario: Morgan starts with $10,000, adds $200 a month to a taxable account for 20 years, and assumes an illustrative 6% return, a 22% tax rate on that return, and 3% yearly inflation. Deposits are made at the end of each month.
- Nominal future valueAt 6% ÷ 12 per month for 240 months: $125,510.22
- After-tax return6% × (1 − 0.22) = 4.68%
- After-tax future valueAt 4.68% ÷ 12 per month for 240 months: $104,688.39
- Inflation factor1.03^20 = 1.806111
- Real value$104,688.39 ÷ 1.806111 = $57,963.43 in today's dollars
- Purchasing power lost$104,688.39 − $57,963.43 = $46,724.96
Morgan's account would show $104,688.39 after tax, but that would buy about what $57,963.43 buys today, close to the $58,000 Morgan put in.
Comparing real value with contributions is approximate, because deposits made in later years are themselves in less valuable dollars.
When should you look past the nominal balance?
Planning for a goal decades away
Over long periods inflation compounds just like interest does. A real-value figure tells you whether a long-range target is likely to cover what you expect it to buy.
Choosing between taxable and tax-advantaged accounts
Run the plan with your tax rate, then with 0% to approximate an account where growth is not taxed along the way. The difference is a rough measure of the tax drag.
Judging a low-rate savings account
Enter the account's rate, your tax bracket and an inflation assumption. If real value comes out below your contributions, the account is preserving cash but not growing your buying power.
Checking whether a return assumption is realistic
A return that looks comfortable before tax and inflation can turn thin afterward. Seeing all three numbers together keeps the plan honest.
What are common errors with taxes and inflation?
Using the wrong tax rate
Interest on savings and CDs is generally taxed as ordinary income, often at your top federal bracket plus any state tax. Using a lower rate understates the drag.
Applying tax to an account that is not taxed yearly
Some retirement and education accounts defer or avoid tax on growth. Applying a yearly tax rate to those overstates the cost, so set the tax rate to match the account.
Picking an inflation rate without context
Inflation varies over time. Use a moderate long-run assumption and test a higher one, since a single point estimate can make a plan look safer than it is.
Reading purchasing power lost as a fee
It is not money taken from your account. It measures how much less the same dollars will buy, which matters for planning but does not appear on any statement.
How much does the tax rate change the outcome?
Each step up in tax rate trims both the after-tax balance and its real value. Holding Morgan's plan steady, moving from no tax to a 32% rate on returns cuts the real value by about $16,000.
The 0% row is a stand-in for an account where growth is not taxed each year. It is a simplification, because withdrawals from some of those accounts are taxed later, but it shows how much yearly taxation alone costs.
| Tax rate on returns | After-tax future value | Real value (today's $) |
|---|---|---|
| 0% | $125,510.22 | $69,491.97 |
| 12% | $113,600.01 | $62,897.57 |
| 22% | $104,688.39 | $57,963.43 |
| 32% | $96,601.21 | $53,485.75 |
Terms used on this page
- Inflation
- Inflation is the general rise in prices over time, which reduces how much a dollar can buy. In the US it is most often measured by the Consumer Price Index, published monthly by the Bureau of Labor Statistics. When your savings earn less than inflation, their purchasing power shrinks even though the dollar balance grows.
- Real Rate of Return
- The real rate of return is what your money earns after adjusting for inflation. It shows the actual growth in purchasing power rather than in dollars. A quick estimate is the nominal rate minus inflation; the exact figure is (1 + nominal) ÷ (1 + inflation) − 1, which is slightly smaller.
- Compound Interest
- Compound interest is interest earned or charged on both the original principal and the interest that has already built up. Each period's interest is added to the balance, so the next period's interest is a little larger. Over long stretches, compounding makes savings grow faster and unpaid debts grow faster too.
- Savings Rate
- Your savings rate is the percentage of your income that you save rather than spend. It is usually calculated as money saved divided by take-home pay, though some people use gross income. A higher savings rate builds emergency funds faster and shortens the time to reach long-term goals, often more than chasing a higher return.
Savings After Taxes & Inflation: common questions
What will my savings be worth after inflation?
Divide the future balance by (1 + inflation rate) raised to the number of years. At 3% inflation for 20 years, that factor is about 1.806, so $100,000 in 20 years buys roughly what $55,368 buys today. The calculator above does this for you after first taking out taxes, which gives the most realistic figure.
Is interest on a savings account taxable?
Yes, generally. Interest from savings accounts, money market accounts and CDs is taxable as ordinary income in the year it is credited, whether or not you withdraw it. Banks typically report interest of $10 or more on Form 1099-INT. Some government bond interest is treated differently, and interest inside qualifying tax-advantaged accounts follows those accounts' rules.
What is a real rate of return?
A real rate of return is what your money earns after inflation, and often after taxes too. A rough version is the after-tax return minus the inflation rate: a 4.68% after-tax return with 3% inflation gives a real return of about 1.7%. If the real return is negative, your savings are losing buying power even though the balance rises.
Can my savings lose value even if the balance grows?
Yes. If the interest left after tax is smaller than inflation, each year your balance buys a little less even as the number on the statement goes up. That is common with low-rate accounts in periods of higher inflation. The real value result in the calculator makes this visible by expressing everything in today's dollars.
Why does the calculator apply tax to the return instead of the final balance?
Because in a taxable account, interest is taxed each year as it is earned, so the money paid in tax never gets to compound. Cutting the annual return by your tax rate models that drag. Taxing only the final balance would understate the cost by ignoring the growth lost along the way.
What inflation rate should I use for long-term savings?
Use a moderate long-run assumption for the main projection and test a higher rate as a stress case. Inflation is measured by the Consumer Price Index and has varied widely over different decades. Because the effect compounds, even a one-point change in the assumption makes a large difference over 20 or 30 years.
How do I model a tax-advantaged account?
Set the tax rate on returns to 0% to approximate an account where growth is not taxed each year. That is a simplification: some accounts tax withdrawals later, and others allow tax-free withdrawals only for qualified uses. The 0% run is useful as a comparison point against a taxable account, not as a precise tax projection.
What does purchasing power lost mean?
Purchasing power lost is the after-tax balance minus its value in today's dollars. It is the buying power the money gives up to rising prices over the period. No one takes it from your account, but it is a real cost for planning, because it is the part of your future balance that only keeps up with prices.
Does inflation affect money in a CD?
Yes. A CD's rate is fixed, so if inflation rises after you open it, the real return on that CD falls. A CD paying less than inflation after tax preserves the dollar amount but not its buying power. Some government savings bonds adjust for inflation, which is a different trade-off from a fixed-rate CD.
Sources
- Topic no. 403, Interest received — Internal Revenue Service. Accessed October 17, 2026.
- Consumer Price Index — U.S. Bureau of Labor Statistics. Accessed October 17, 2026.
- I bonds — TreasuryDirect (U.S. Department of the Treasury). Accessed October 17, 2026.
- Compound Interest Calculator — U.S. Securities and Exchange Commission (Investor.gov). Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations, last checked October 17, 2026. See our methodology.