Inflation Relief: 5 Key Ways To Get the Best Interest Rates on Your Savings
Inflation isn’t a new issue for the U.S., but in recent times, it’s been extra intense. In May 2022, it rose to 8.6% from a year prior — the highest it had been in four decades. Inflation has cooled down since then, but it remains a serious issue and continues to put pressure on consumers who can’t keep up with the associated rising costs.
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There are a few ways to manage the impacts of inflation on your wallet — chiefly, cutting out as many costs as possible and overhauling your budget to do so. But perhaps the most powerful way to get inflation relief is to make money out of money, meaning, earning high interest.
“Look for opportunities to get high interest rates on the cash you have on hand at financial institutions to minimize inflation on your cash savings,” said Bola Sukunbi, a finance expert and the founder and CEO of Clever Girl Finance.
Here’s a look at some of the best ways to get inflation relief via where you move or invest your savings.
High-Yield Savings Accounts (HYSAs)
Unlike traditional savings accounts, HYSAs are designed specifically to make your money grow faster by essentially letting you earn interest on interest.
“Amidst uncertainty, one thing investors can be certain of is the potential to earn more interest through high-yield savings accounts,” said Max Lane, CEO of Flourish. “Americans have lost out on at least $291 billion in interest since the start of 2019 by keeping their savings with the biggest U.S. banks.”
To really hammer this point home, Lane noted that traditional savings accounts currently have an average APY of about 0.42%, while high-yield solutions are offering 4.5% or greater.
“In dollar terms, that’s a difference of thousands of dollars for many households,” Lane said. “Many households have an opportunity to earn tens or hundreds of times what they’re earning at the bank — extra cash that could pay for a vacation, health emergency or tax payments.”
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High-Yield Bond ETFs
If you’re up for dipping your toes in the investment world — and everyone should be! — high-yield bond ETFs can be a smart option, but they do entail taking on more risk in exchange for higher returns.
“These funds invest in corporate bonds with higher yields, because they have lower credit ratings than investment-grade bonds,” said Jeff Rose, CFP, founder of Good Financial Cents.
“A couple of examples to peek at would be the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) — 30 day yield of 8.28% — and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) — 30 day yield of 8.41%,” Rose said. “Both of these ETFs aim to provide a broad exposure to high-yield corporate bonds, but remember, with the potential for higher returns comes higher risk, especially compared to the safety of a savings account or CD.”
Certificates of Deposit Accounts (CDs)
Speaking of CDs — short for Certificates of Deposit — these accounts should also be considered for inflation relief, as you can lock in as much as 6% interest right now. But note that term: “lock in.” With a CD, you have a set period of time in which you promise to not touch the money until the agreed upon term is up. If you do make any withdrawals ahead of that time, you’ll likely be slapped with an early withdrawal penalty, which could altogether defeat the purpose of having a CD.
“Certificates of deposit are a good fit for people prioritizing safe and stable earnings,” said Ben McLaughlin, U.S. President at Raisin. “The gains may be smaller than the long term potential of investing in stocks, for example, but on the plus side, you won’t have to worry about losing your life’s savings. As long as you are banking with a federally-insured institution and follow the guidelines, your money is safe and your accrued interest is guaranteed.”
Treasury Inflation-Protected Securities (TIPS)
TIPS are government securities engineered with the exact purpose of fighting inflation and should be considered for those seeking inflation relief.
Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS tends to fluctuate, reflecting the movement of inflation and deflation.
“When TIPS mature, you receive the adjusted principal or the original principal, whichever is greater,” Rose said. “This ensures that your investment grows at least at the rate of inflation, preserving your purchasing power.”
Real Estate
Finally, you should consider investing some of your savings into real estate in order to combat inflation, as real estate tends to escalate in value relatively quickly.
“Real estate often serves as a reliable hedge against inflation,” Rose said. “As inflation rises, so typically do property values and rental incomes. According to the U.S. Census Bureau, the median sales price of houses sold in the U.S. as of August 2023 was $430,300, representing a significant increase from previous years and reflecting the potential for property to appreciate over time.”
Let Go of Your Emotional Attachment to Cash
The moral of the story, if you will, surrounding these five key ways to get the best interest rates on your savings, is to surrender your attachment to cold hard cash and put a healthy serving of your savings into a vehicle or account where it can be built up rather than drained out.
“There’s something emotional about cash,” Lane said. “Most people don’t think of cash as an investment but rather a source of protection and safety. But cash is becoming an asset class again. With a lot of folks feeling the squeeze of their purchasing power declining, the question everyone should be asking is if their money is working for them right now. There is no reason why you shouldn’t be getting over 4.5% on cash right now, especially because high yield accounts are protected by the FDIC — up to a certain amount — and daily liquid.”
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This article originally appeared on GOBankingRates.com: Inflation Relief: 5 Key Ways To Get the Best Interest Rates on Your Savings
