In May, inflation hit a 40-year high of 8.6%. The cost of essentials like gas and groceries has risen sharply, so we’re all losing purchasing power and feeling the pinch. This high-inflation environment is also eroding the value of our savings. Bank accounts don’t offer enough interest to outpace inflation, so we’re effectively losing money by parking our cash in savings accounts.
With economists predicting that a recession could be on the way, it’s more important now than ever to protect your money. If the worst happens and you get laid off, you may need to rely on your savings to get by, so you’ll need every penny. Here are some of the strategies I’m using to protect the value of my savings from inflation so my hard-earned money isn’t eroded.
Open a High-Yield Savings Account
The average interest rate for savings accounts is 0.07%, which isn’t going to cut it with today’s inflation rates. If you’re still using an average bank account instead of a high-yield savings account, it’s time to make the switch.
You should stash any savings you may need immediate access to like your emergency fund in an account with a high APY to help protect it from inflation. For example, TAB Bank offers a high-yield savings account with a respectable 1.26% APY. Although you’ll still lose some purchasing power because inflation is so high, it’s still better to earn 1.26% interest than next to nothing.
Some credit unions also offer higher APYs on savings accounts to their members as an added benefit. Evansville Teachers Federal Credit Union offers a checking account with an APY as high as 3.30%. You don’t have to be a teacher to qualify for membership—family members of teachers are also eligible.
Buy Savings Bonds
Buying savings bonds is a good option if you have long-term savings that you won’t need to touch for at least a year. Right now Series I savings bonds are offering an interest rate of 9.62%. I bonds typically pay the inflation rate plus a fixed interest rate on top of it. The rates are adjusted twice each year.
I bonds will be available at 9.62% interest through October 2022 and the rate is valid for the first six months after purchase. You can purchase an I bond for as little as $25, so you don’t need a lot of money to start investing. But if you want to park most of your long-term savings in I bonds to protect your money from inflation, you can purchase up to $10,000 worth of them per year. Just remember that you’ll have to forfeit the last three months of interest if you cash in your bond before the five year mark.
Invest Your Money
Although economists are predicting that a recession is around the corner, it could still be a good idea to invest your long-term savings to protect them from inflation. If you have money you won’t need for five to ten years, you’ll likely come out ahead in the long run by investing in broad market index funds.
Even if your investments dip after you purchase them due to an upcoming recession, you can expect to earn an average of 10% per year before inflation over the long term. Obviously, there will be highs and lows because of market fluctuations. But the good times usually balance out the low-performing years and you’ll probably see a good return on your money.
What are some strategies you’re using to protect your money from inflation? Let me know in the comments section below!
P.S. Another great way to cope with inflation is to save more. A good way to do this is to use a cashback site – Rebatefanatic.com is a good example. It has got excellent rebates on many wonderful brands, such as Walmart and Kroger.
Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.