How to save money during times of inflation, like right now

When it comes to spending power, inflation means things cost more and your money becomes less valuable. When a period of high inflation occurs, such as right now, you may want to consider changing the way you manage your finances to protect the value of your money.

“Inflation is a time for investors and savers to reevaluate their strategies,” said Walter Russell, CEO of financial advisory firm Russell and Company.

Through the Federal Reserve, the government tries to fight inflation on a large scale by increasing the Federal Funds Ratewhich is the interest rate commercial banks use to borrow and lend money to each other.

As the cost of borrowing becomes more expensive, higher interest rates flow to consumer banking products such as loans and mortgages, making them more expensive. But higher interest rates can also apply to deposit accounts, which means banks are starting to offer higher interest rates on checks, savings, and certificates of deposit.

Nobody knows what the future will bring, but by making changes to how you spend and where you keep your money, you may be able to overcome periods of inflation more easily.

Here are some ways to save during times of inflation.

Look for high-yielding interest rates

It can be frustrating not to be able to borrow large purchases as easily during times of high inflation. However, consumers can take advantage of higher interest rates on bank accounts to combat the effects of inflation on their cash. Bank account interest rates usually don’t completely beat the inflation rate, but these accounts can help protect against inflation much better than keeping cash at home or in a low-rate account.

The national average annual percentage return for savings accounts is 0.06%, according to the Federal Deposit Insurance Corporation, but there are many financial institutions that offer much higher rates, some as high as 1.00% APY or more. To find these rates, you can search for high-yield or high-interest accounts and choose the bank that works best for you.


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Find ways to keep costs down

If you haven’t looked over your budget in a while, now might be a good time. During the pandemic, you may have subscribed to more streaming services that you no longer use, or you may be spending more money on dining out or paying for more convenience services now.

You can cycle more often instead of driving everywhere, and you can reevaluate your food budget to add cheaper healthy meals. For a bigger change, you could scale your accommodation to save even more.

Consider investing or buying bonds for long-term savings

It’s a good idea to keep short-term liquidity, such as an emergency fund, accessible in a savings account, but if you have savings that you don’t expect to need for a year or more, you may want to consider invest those funds or purchase a treasury bill.

“For someone with a lot of money sitting on the sidelines, (investing) could help you not lose money,” Russell said. “More people may be willing to take more risks because they want a higher rate of return.”

Russell also advises consumers to consider purchasing TreasuryDirect Series I Savings Cards, which may offer an interest rate of more than 7% on up to $ 10,000 for a one-year period. These bonds are basically like a certificate of deposit – you put your money in one for a year and by the end of the year you have a guaranteed rate of return that will hopefully stay above the current inflation rate, so your money wins’ t lose value.

The government will continue to review inflation data and make appropriate adjustments to the federal funds rate. However, there are other factors that could slow inflation in the coming year, such as changes to global supply chains that could free up stocks and lead to lower prices for goods. Regardless of whether inflation rises or falls, it’s a good idea to keep an eye out for ways to maximize your savings.

This column was provided to the Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Chanelle Bessette is a NerdWallet writer.

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