Inflation and the real rate of return

A deposit ad shows the nominal rate — here 14% a year. It's the gross interest, before the bank withholds tax.

As of September 2026 the bank keeps 23% of the interest (18% personal income tax + 5% military levy), and crucially it takes that from the interest alone, never from your deposit. On 100,000 UAH the interest is 100,000 × 0.14 = 14,000; tax is 14,000 × 0.23 = 3,220; so 14,000 − 3,220 = 10,780 reaches the account. That is 10.78% after tax.

A shortcut: the after-tax rate is just the nominal rate × (1 − 0.23) = 14% × 0.77 = 10.78%. This is only the first of the two haircuts a headline rate takes — inflation is the second.

A deposit hides four numbers, and each answers a different question:

• Nominal rate (14%) — the promise on the ad, before anything is taken off.
• After-tax rate (10.78%) — what actually reaches the account, once the bank withholds 23% of the interest.
• Inflation (8.1%) — how much the prices of the things you buy rose over the year.
• Real rate (2.48%) — how much more your savings can actually buy, found by dividing: 1.1078 / 1.081 − 1.

The fifth number, 5.9%, is the common mistake: the ad rate minus inflation, with the tax forgotten. It overstates the real gain more than twice over. Keep the order — ad rate, then tax, then inflation — and you always know which question each number answers.

A balance can grow in hryvnias and still shrink in what it buys. The real return is negative whenever inflation outruns the after-tax rate, because prices climb faster than the account.

The real rate is 1 plus the after-tax rate, divided by 1 plus inflation, minus 1. When inflation is the bigger number, that fraction is below 1, so the result is negative. Example: 8% after tax with 10% inflation gives 1.08 / 1.10 − 1 ≈ −1.8% — the balance is up 8% in hryvnias but buys about 1.8% less.

This is why a growing balance is not proof your savings are keeping up. Always compare the after-tax rate with inflation; only the real rate tells you whether purchasing power rose or fell.

To judge whether a deposit protects savings next year, two things must be right: use the rate that actually reaches you, and treat future inflation as unknown.

Only the after-tax rate lands on the account (10.78%, not the ad's 14%). And next year's inflation is not locked the way the deposit rate is, so a single guess is fragile. The useful check is a range: compute the real rate at, say, 6%, 8% and 12% inflation. Dana's deposit gains in purchasing power at 6% and 8%, but at 12% it loses: 1.1078 / 1.12 − 1 ≈ −1.1%.

The weak alternatives all skip a step: the ad rate ignores tax, last year's inflation may not repeat, and a bigger hryvnia balance says nothing about prices. If a deposit only wins in the friendliest case, it isn't much of a plan.