I was checking rate of return on T-bills and US’ inflation rate. Source: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/ AND http://www.usinflationcalculator.com/inflation/historical-inflation-rates/.
Last year’s Inflation ~ 1.5% and US T-Bill’s Rate of return ~ 0.11%. So, if I invest money in T-bill, does it mean that I will lose money relative to the inflation? As in, should I just keep my cash in my hands?
Please let me know.
Thanks in advance.
You shall use your money to buy some real assets of which their prices inflated at rates least as the iiflation rate. Buying t-bill makes you lose 1.39% (1.5 - 0,11%) and keep cah on your hand will make you lose 1.5% (even more).
Yes, that’s why TIPS were created
But, then the demand of such debts should go down, in my opinion. Why are these still used? I will be at a loss if I keep my money in such accounts. Moreover, almost all savings account in the US give savings rate of less than 1%. (http://money.cnn.com/2013/10/01/pf/savings-account-yields/ )
Does it mean that all those savings accounts are useless? Can someone please comment?
They’re not useless if you’re losing less by investing in them than you are by stuffing your money in your mattress.