How to Fight Inflation's Hidden Threat to Your Savings

A man holds an empty piggy bank upside down, looking for money to fall out.

(Image credit: Getty Images)

published 17 November 2024

Inflation may be abating, but its impact on Americans' savings remains a quiet crisis. Many find themselves dipping into their reserves just to keep up with daily expenses. While the rate of inflation has moderated in recent months, it continues to have a lagging effect on consumers. A recent study shows over 80% of Americans with credit card debt reported increased anxiety and a growing reliance on credit for essentials as inflation continues to eat into household budgets, with millennials, minorities and lower-income groups especially hard-hit.

This isn’t just a story of inflation, but of compounding challenges that affect the average saver’s ability to set money aside. While financial institutions can’t control market forces, they play a critical role in helping people develop strategies to safeguard their savings against today’s economic pressures.

Actions you can take, with the support of financial institutions

Data shows that many Americans are pivoting from saving to survival mode. According to Allianz Life’s recent Q3 survey, 66% of Americans still expect inflation to worsen over the coming year, a sentiment pushing them to make protective, risk-averse financial decisions. Moreover, many have scaled back on regular contributions to their savings, a trend that disrupts long-term financial security.

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These times are forcing many to shift in focus from traditional saving to more adaptive approaches that take inflation and rising costs into account. Here are some strategies that individuals and institutions alike can consider:

Prioritize emergency funds

Build a strong emergency fund that covers three to six months of expenses. This serves as a financial cushion against unexpected costs or job loss, providing a reliable fallback that doesn't require tapping into long-term savings.

Consider financial tools with growth potential

High-yield savings accounts can be valuable in preserving purchasing power. While high-yield accounts may currently offer lower returns due to recent Federal Reserve rate cuts, their benefits compound over time, providing a reliable balance between accessibility and growth.

If you haven’t already done so, research what your local credit unions are offering for high-yield accounts, as they typically offer much better rates than those from big banks.

Encourage diversified investments

Diversifying beyond traditional savings into a mix of conservative and growth-oriented investments can mitigate risk. Investment options, such as TIPS and I-bonds, certificates of deposit (CDs) and target-date funds enable savers to keep pace with inflation while protecting against volatility.

Manage your debt and seek financial education

With credit card balances now outpacing savings for many, financial education on responsible borrowing and debt consolidation becomes essential. Consolidating high-interest debt into manageable, fixed-rate payments or refinancing can help individuals avoid accruing additional debt and maintain financial stability.

Financial institutions play an important role here by providing accessible, easy-to-use resources and educational programs to guide consumers in managing debt smartly. Some, like Affinity, offer programs virtually and in-person consultations, providing the opportunity to connect directly with experts who can help pave the way toward paying off debt.

Focus on financial literacy and budgeting skills

Rising prices make it harder to stretch each dollar, reinforcing the importance of strong budgeting skills. Financial institutions should prioritize financial wellness programs that help members make informed decisions. This could include guidance on creating achievable budgets, recognizing areas to cut back, and identifying high-priority savings.

Facing today’s complex economic pressures requires more than traditional saving strategies — it demands a holistic approach to financial well-being. Financial institutions are in a unique position to support our customers or members with the knowledge and tools needed to protect their financial futures.

The silent crisis of savings erosion doesn’t make daily headlines, yet it affects countless households and communities. Through practical solutions like building emergency funds, debt management education and appropriate investment strategies, we can empower individuals to not only survive but thrive through challenging economic periods. The sooner we address these changes, the stronger we can all emerge on the other side.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Kevin Brauer, a distinguished finance industry professional with over three decades of experience, has been at the helm of Affinity Credit Union as CEO and President since January 2023. His substantial contribution to Affinity over the past seven years has been instrumental in propelling the firm's value proposition and innovating its financial well-being initiatives. Brauer leads Affinity's dedicated team of 500 employees at its Basking Ridge, N.J., headquarters and throughout its 18-plus branches.