How to Break the 'Interest Rate Illusion' Where Funds Remain in Savings Accounts in the Era of 0.5% Interest Rates—Reading Through Three Figures: Nominal, After-Tax, and …
Introduction
“Since interest rates have gone up, I’ll leave my money in savings for a while.” Have you ever been at a loss for words when a customer said this during a preservation procedure?
Is 0.5% a lot or a little? How much tax is deducted from the interest? Compared to inflation, is it really increasing? These are generally the three questions that come up in meetings.
On September 18, 2026, MUFG Bank and Sumitomo Mitsui Banking Corporation announced that they would raise the interest rate on yen ordinary deposits from 0.40% per annum to 0.50% per annum. The application starts from November 2, 2026.
Mizuho Bank also announced a revision to its yen deposit interest rates on the same day, and Japan Post Bank’s ordinary savings will also become 0.500% from November 9. The applicable interest rate at the time of writing (October 28, 2026) is still 0.40%.
The customer’s perception that “interest has been earned” is not wrong. The interest rate on MUFG Bank’s yen ordinary deposits was 0.001% until March 20, 2024. That is a 500-fold increase.
In terms of pre-tax interest when depositing 1 million yen for one year, it is a calculation of 10 yen becoming 5,000 yen.
However, in the same autumn, another figure has emerged. The national consumer price index (comprehensive) for September 2026 was a 2.1% increase compared to the same month of the previous year (announced on October 23).
0.5% and 2.1%. Although both are annual rates, these two are rarely discussed side-by-side in meetings.
I will write the conclusion first. The 0.5% on ordinary deposits can only be understood by breaking it down into three figures.
The first is nominal, which is the 0.5% pre-tax figure displayed by the bank. The second is after-tax, which is 0.398% after 20.315% tax is deducted from the interest. The third is inflation-adjusted, which is approximately -1.7% after subtracting the 2.1% inflation rate of the past year.
“Increasing” and “losing value” are both correct at the same time
The balance in the passbook increases. Even after tax is deducted, it increases. Yet, when measured by purchasing power, it is losing value as long as you subtract the actual performance of the past year.
All three are facts.
In terms of a pay stub, 0.5% is the gross amount, 0.398% is the take-home pay, and the inflation-adjusted figure is “whether you can buy the same things as last year.” It is as if a person happy that their gross pay has increased and a person tilting their head while looking at their take-home pay are looking at the same statement.
What the customer is looking at is the first figure. What we as solicitors tend to say is the third figure.
The reason the conversation does not align is not because one of you is wrong. It is because you are looking at different figures.
Before saying “deposits lose value”
I will tell you this first. This article is not a proposal to move money from deposits to somewhere else.
There is a reason to keep living expenses and money to be used in the near future in deposits, even if the inflation-adjusted figure is negative. The three figures are not a reason to stop using deposits, but a tool to put into words the reason for keeping them in deposits.
The sensation of interest rates increasing 500-fold and the reality of prices rising by 2.1% are measured on different scales. It is as if the price tag moved two centimeters while you were watching the ruler’s markings advance by one millimeter.
In this article, we call the habit of judging savings based solely on nominal figures the ‘interest rate illusion.’ Since this is not a matter of knowledge, it cannot be broken simply by saying, ‘Your savings are losing value.’
The definitions and values of the three figures are summarized in the table below.
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