Even if deposit interest rates rise, is the value of money protected? | Calculating real interest rates and how to choose deposits [VOL.36]

In VOL.35, we introduced figures showing that even if deposit interest rates rise, the rate of inflation is higher. In this article, we will organize the concept of the “real interest rate” used to calculate that difference, as well as the mechanisms you should look at when choosing a deposit (the difference between ordinary and time deposits, deposit insurance, and interest rate conditions).

※This article is educational content that introduces general concepts regarding deposits and prices, and does not recommend the use of specific financial institutions or products, nor the transfer of funds from deposits to investments. The interest rates and prices in the article are as of the time of writing and do not predict future movements. Please invest at your own risk.

Conclusion: To see the value of a deposit, calculate the “real interest rate”

The “real interest rate” is used to see whether the value of your money is increasing or decreasing by not only looking at whether the interest on your deposit is increasing, but also by subtracting the amount that prices have risen.

If it is positive, the amount you can buy is increasing. If it is negative, the amount you can buy is decreasing.

Let’s calculate (figures as of October 2026)

The figures used are as follows.

• Ordinary deposit interest rate: 0.4% per year (Mega bank. 0.5% from November 2nd)

• Tax on interest: approximately 20.315%

• Inflation rate: +1.7% year-on-year in the August national consumer price index (excluding fresh food)

If the interest rate is 0.4%

1. After-tax interest rate = 0.4% × (1 – 0.20315) ≒ 0.319%

2. Real interest rate = 0.319% – 1.7% ≒ -1.38%

If the interest rate is 0.5%

1. After-tax interest rate = 0.5% × (1 – 0.20315) ≒ 0.398%

2. Real interest rate = 0.398% – 1.7% ≒ -1.30%

Even if the interest rate rises by 0.1%, if the inflation rate remains at 1.7%, the real interest rate does not change significantly.

What happens if the same state continues for 10 years (this is just a hypothesis)

Assume you deposit 1 million yen for 10 years at an after-tax interest rate of 0.319%, and the inflation rate remains at 1.7% per year.

• Deposit amount after 10 years: approximately 1.03 million yen

• How prices rise: approximately 1.184 times (1.017 to the 10th power)

• Amount needed to buy the same items: approximately 1.18 million yen

• Deposit amount adjusted to current value: approximately 870,000 yen

Even if the nominal deposit amount increases, the amount you can buy is calculated to decrease by about 13%. However, this is an extreme assumption that ‘both interest rates and prices remain unchanged for 10 years.’ In reality, both interest rates and prices fluctuate, so the results will change. Please view this as an example to understand the mechanism.

Which figure should I use for ‘prices’?

There are several indicators for prices. The national consumer price index (year-on-year) for August 2026 is as follows.

• General index excluding fresh food (so-called core): +1.7%

• General index excluding fresh food and energy (the indicator emphasized by the Bank of Japan): +1.9%

• General index excluding food and energy (US-style core): +1.6%

The real interest rate changes depending on which one you use. Furthermore, subsidies for electricity and gas bills have been pushing down prices since August, and private analysis (Daiwa Institute of Research) points out the possibility that electricity and gas bills could rise significantly after November, when the subsidies end.

The important thing is to use the national average figures as a guide while also checking the items where you actually feel price increases in your own household budget (food, utility bills, daily necessities, etc.).

Things you should know about how deposit interest rates work

Difference between ordinary deposits and time deposits

• Ordinary deposits: When interest rates change, the new interest rate is applied to the money you have already deposited.

• Time deposits: In principle, the interest rate at the time of deposit continues until maturity. If you deposit the full amount into a long-term time deposit during a period of rising interest rates, it will be harder to benefit from subsequent interest rate hikes.

It is not a question of which is better, but rather a way of thinking about choosing according to when you will use the money.

High interest rates have conditions

Even if interest rates exceeding 1% appear at online banks, there may be conditions such as a cap on the deposit amount (e.g., up to 1 million yen), salary transfers, or the use of other services. In the case of expressions like ‘maximum,’ ‘bonus interest rate,’ or ‘including points,’ the actual interest rate depends on the conditions. Please check the official website of each bank before applying.

How deposit insurance works

• For each financial institution, up to 10 million yen in principal per depositor, plus interest, is protected

• If you have multiple deposits at the same financial institution, the balances are aggregated (known as ‘nayose’)

• Non-interest-bearing payment deposits are fully protected

• Foreign currency deposits and investment trusts are not covered by deposit insurance

If you have deposits exceeding 10 million yen, it is reassuring to check the balance for each financial institution.

Checkpoints when choosing a deposit

1. Pre-tax or post-tax?: The interest rates displayed are often pre-tax

2. Are there conditions?: Usage conditions such as deposit limits, terms, and bank transfers

3. When will you use the money?: Use savings accounts for money you need soon, and consider time deposits if you will use it later

4. Is it within the scope of deposit insurance?: Does the balance at each financial institution exceed 10 million yen?

Summary

Even if deposit interest rates rise, as long as they are lower than the inflation rate, the real interest rate is negative, meaning the amount you can buy will gradually decrease. However, deposits have the strength of not losing principal and being protected by deposit insurance, so it is important to understand the system and use them appropriately.

In the next VOL.37 (paid), I will introduce how to use AI to calculate real interest rates and organize where to keep your deposits and investments, including prompts and spreadsheet formulas.

References

• National Consumer Price Index (August 2026): Daiwa Institute of Research report. July figures are from a Kumamoto Nichinichi Shimbun article

• How deposit interest rates work (difference between savings and time deposits): Explanatory article distributed by Yahoo! Finance (September 2026)

• Raising deposit interest rates: Impress Watch (September 20, 2026)

• Deposit Insurance System: Explanatory page by the Japanese Bankers Association

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(This article is educational content introducing general concepts regarding deposits and prices, and does not recommend the use of specific financial institutions or products, nor the transfer of funds from deposits to investments. Interest rates and prices in the article are as of the time of writing. Please invest at your own risk.)