Unfortunately the confusion exists right at the center of the question. In case of a savings acct, CD type investment you are saying losses on principal due to depreciating currency is not deductible (because you consider savings acct as personal asset so sec988 doesn't apply). According to @ThomasM125 savings acct is for the purpose of income generation (sec212 exceptions to personal asset applies) so the depreciation is ordinary loss.
The strange thing is that savings acct/CD/term deposits are very popular instruments, not some exotic investment; so I am surprised that we dont have a agreed upon answer. Also, logically, if I make 20% interest in a rupee acct while rupee losses 30% against USD due to depreciation, the whole investment is at 10% loss, how can IRS expect to tax 20% income while ignoring the overall loss ?
