Are High-Yield Savings Accounts Still Outpacing Inflation?

Mature couple with documents and notebook — (Image credit: Iakov Filimonov)

Inflation continues to take significant bites out of household budgets. July inflation sits at 2.7%, the same as June's.

Food prices remain expensive, as beef prices have hit an all-time high, per Newsweek. Cumulative inflation shows the real impact consumers continue to face. Bankrate found prices are more than 24% higher than they were in February 2020.

If you're feeling inflation's squeeze on your finances, you're far from alone. Thankfully, there are ways of cushioning your finances against inflation, and one of the best ways to achieve this is by placing your money in high-yield savings accounts.

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Do savings accounts really outpace inflation?

If you open a savings account at a brick-and-mortar bank, chances are you're going to be disappointed. Traditional savings accounts offer a 0.6% APY on average, making it far below inflation's 2.7% rate.

However, a high-yield savings account offers much healthier returns. Some of our top options, such as this one from Newtek Bank, give you a return of 4.35%, well above the inflation rate.

Another perk is that many high-yield savings accounts come with low deposit requirements and no monthly fees. This helps you keep more of your money, which is integral given inflation's impact.

How much can I earn with a high-yield savings account?

Let's take our top pick Newtek Bank, that earns 4.35% APY. Here's how much you would earn in one year for opening the account today:

$10,000 deposit: $435 in interest
$25,000 deposit: $1,087.50 in interest
$50,000 deposit: $2,175 in interest
$100,000 deposit: $4,350 in interest

As you can see, this approach could help you earn significant gains effortlessly. This calculation assumes there will be no rate cuts in the next year from the Federal Reserve.

While that's unlikely, given the weak job numbers, inflation could prompt the Fed to continue its wait-and-see approach. This is important because high-yield savings accounts come with variable interest rates, meaning that if the Fed cuts rates, it will also drop your rate of return.

What savings alternatives should I consider?

Mature man looking into the distance and thinking while using digital tablet on table at home.

If you're worried about rate cuts eating into earnings, another approach is to open a certificate of deposit. Unlike HYSAs, CDs feature fixed interest rates.

It means if you lock in your rate now and the Fed cuts them later this month, it won't impact you since you have your rate locked in.

You can shop quickly for the best CD rates, using this tool, powered by Bankrate:

There are a few things to keep in mind with a CD. First, many come with terms that won't allow you to withdraw your money until it reaches its maturity date. If you need cash before that time, your penalties could be months of earned interest, negating its benefit.

You can’t add to your balance the way you would with a high-yield savings account, so CDs are best suited for a lump sum you won’t need for awhile — letting you lock it into a risk-free vehicle that outpaces inflation.

Another option is a money market account. These are better-suited for established savers, as many accounts require a minimum balance of $1,000. In many ways, these accounts offer the best perks of checking, in that you can access your money anytime you want with a debit card.

Moreover, you'll gain all the perks of a savings account, including returns as high as 4.35%. This will also allow you to earn more money than inflation takes. However, as with a high-yield savings account, money market accounts come with variable interest rates. If the Fed cuts rates sometime soon, it could lower your returns.

If you're on the fence about savings options, this table can help:

Swipe to scroll horizontally

Savings vehicle	Cash access	Minimum balance requirement?	Best for?
High-yield savings account	Anytime you need it	Most online accounts don't have balance requirements	Savers looking to build an emergency fund or have cash access
CDs	When your term ends, outside of no-penalty CDs	At least $500	Established savers looking to shield money from rate cuts/inflation
Money market accounts	Anytime you need it, though there might be restrictions on how often you can access it	At least $1,000	Established savers looking for quick cash access

Overall, there are several ways you can save money and stay ahead of inflation. High-yield savings accounts are the easiest, as they come with the fewest restrictions and only take a few minutes to set up.

Best of all, with rates as high as 4.35%, you'll earn a rate outpacing inflation, even if the Fed cuts rates and savings APYs drop. Therefore, if you're feeling inflation's squeeze, the right savings accounts can lessen its impact.

Sean is a veteran personal finance writer, with over 10 years of experience. He's written finance guides on insurance, savings, travel and more for CNET, Bankrate and GOBankingRates.