Inflation is not slowing down. I bonds and other savings strategies can help stretch your dollar
This story is partan online community dedicated to financial empowerment and advice, led by CNET Editor at Large and So Money podcast host Farnoosh Torabi.
With inflation, finding ways to maximize your savings is more important than ever. As interest rates rise, increasing the cost of borrowing, there’s a small silver lining: Savings account rates also rise.
Storing your money in a traditional bank account that pays close to 0% interest may actually mean losing silver. If you invested $100 in savings last year, after taking into account the current 8.6% jump in inflation and the current average savings rate of 0.08%, that same $100 is worth a little less today.
To be clear, your $100 is still there, safe and sound, but thanks tothe value of every dollar is now lower.
So what can you do? Are there relatively low-risk ways to save for higher rates of return? Yes. Here are fourwhich can help minimize the impact of inflation on your savings.
I bonds are a relatively safe government-backed investment sold directly to the public that tracks your cash flow alongside inflation.
The current savings rate for I bonds is over 9.5% and is calculated using a fixed rate and an inflation rate determined twice a year. These accounts are not as liquid as bank savings accounts. You need to stick with it for at least a year. Although you can withdraw your money after that, you risk losing the last three months of interest earned by doing so. After five years, you can withdraw your money without penalty.
Pro tip: Park money here that you plan to use for medium-term savings, such as a down payment on the house you expect to need in the next five years. Keep in mind that the limit is $10,000 per year. Any money you won’t need for five years or more can allow you to take on more risk, and investing in the stock market may be a good idea.
2. Hide your money in a high-yield savings account
Some newer, digital-only financial institutions or neobanks offer higher interest rates of 2% to 4% on high-yield savings accounts. These rates do not exceed inflation, but they are well above the average of 0.08%. For example, Current announced earlier this year a new high-yield savings account called “Interest” that offers users an annual percentage return of 4%.
Pro tip: Consider these types of accounts for a savings goal in the next six to twelve months. Be careful parking your emergency funds here, as neobanks tend to be part of limited ATM networks and your money may be harder to access at a glance. Also, make sure the neobank has FDIC insurance that can protect your savings in the event the institution goes bankrupt.
3. Opt for bank accounts with sign-up bonuses
In an effort to attract new customers in today’s competitive market, some banks offer sign-up bonuses and “welcome” benefits for new customers with checking accounts. For example, the Chase Total Checking account offers a $200 account bonus when you fund a new account via direct deposit.
Pro tip: Be sure to follow all account minimum auto deposit rules to avoid monthly fees. If you cannot meet these minimums, the sign-up bonus may not be worth the cost of maintaining that account.
4. Don’t overlook inflation-protected Treasuries
Finally, TIPS are a popular bond instrument during times of high inflation because its value follows the rate of inflation and adjusts twice a year.
As a government-backed bond, your investment will never lose its original value, even if inflation goes the other way.
TIPS are generally a complement to retirement portfolios, but you can avoid transaction fees by purchasing them directly from the US Treasury Department website in terms of five, 10 and 20 years.
Pro tip: Take it easy. Leave your emergency savings in an FDIC-insured savings account that’s super liquid and accessible. Only consider TIPS for some of your extra savings that you don’t expect to need for at least five years.