You'll Kick Yourself in the Fall if You Don't Make These Savings Moves Now
These are the smart money moves to make now with persistently high inflation.
Inflation remains stubbornly high. While gas prices were low for a bit, prompting the latest CPI report to show a slight cooling in inflation, if you've been to the gas pumps recently, you know prices have shot back up.
With the war in Iran ongoing, expect gas prices to remain higher, which can increase the cost of everyday goods. David Payne of the Kiplinger Letter forecasts that without a resolution to the war, inflation will be around 4.00% by the end of the year.
This means unless you have a savings account that keeps pace with inflation, your cash is losing some of its purchasing power. Here are smart savings moves to make now so you don't lose more money later.
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Savings strategies to keep ahead of inflation
The first approach is to keep your emergency fund in a savings account where you can access cash when you need it. For this reason, a high-yield savings account is the smartest choice.
With one from an online bank, you'll earn higher returns than you would with a traditional bank. To demonstrate, Newtek Bank offers a savings account that earns 4.20%, helping shield your cash from inflationary pressures.
Best of all, it's really easy to open one, and there are no monthly account fees. I review savings rates weekly and found this to be the most resilient account, as the APY hasn't moved much after the Fed cut rates last year.
Meanwhile, if you don't feel comfortable moving your money to an online bank, there might be higher-yield solutions at your local bank. Some banks offer higher APYs on money market accounts. To earn them, you'll need to deposit more cash, usually at least $25,000.
Money market accounts can be another smart solution for savers. While most of these accounts earn a bit less than the best high-yield savings accounts do (the best earn around 4.00%), you can still earn a return surpassing the current 3.50% inflation rate. Plus, many come with debit card and check-writing capabilities, giving you easier ways to access your cash.
Things to consider with money market accounts are use restrictions. Some banks limit how many transactions you can do with one. And many come with balance requirements, so pay close attention to both of those before opening one.
And if you have a healthy savings account established and don't need access to some of it, here's another smart solution to consider.
Here are the CDs I recommend right now
CDs remain a smart option for savers. In fact, I have found some that earn more than the top high-yield savings accounts offer.
Factors to keep in mind with CDs are that once you open one, the cash must stay on deposit until the term matures. If you withdraw the funds early, you'll pay a penalty that offsets some of your earnings. And if inflation persists, it could erode some of the purchasing power of future earnings.
As such, they're best for savers who don't need the cash in the interim and feel comfortable earning a guaranteed return. If you fall into this category, here are some of the best CD rates to consider:
Account |
APY |
Min Deposit |
Term |
Row 0 - Cell 4 |
4.00% |
$1,000 |
3 months |
Row 1 - Cell 4 | |
4.25% |
$5 |
6 months |
Row 2 - Cell 4 | |
4.15% |
$1,000 |
1 year |
Row 3 - Cell 4 | |
4.25% |
$2,500 |
2 years |
Row 4 - Cell 4 | |
4.35% |
$100,000 |
13-month jumbo CD |
Row 5 - Cell 4 | |
4.00% |
$1,000 |
9 months no-penalty CD |
Row 6 - Cell 4 |
What you'll notice from this table is that I didn't include long-term CDs. Why? Because there could be a possibility of a rate hike if inflation persists.
At its July meeting, the Federal Open Market Committee voted nine to three in favor of keeping the federal funds rate unchanged. Federal Reserve Bank of Cleveland president Beth Hammach was among the three voting to issue a rate hike. She notes that a higher federal funds rate would reduce inflationary pressures, as current policy isn't appropriately restrictive.
Now, this doesn't mean that a long-term CD isn't a smart solution. To illustrate, if you're nearing retirement and want to allocate some of your cash to less risky options with guaranteed returns, then it's a wise play.
Use this Bankrate tool to find the best options for you:
Just pay close attention to timing. If the Fed makes a move, it will likely be sometime this fall. If you were to invest that money in a short-term CD now, it could mature and open you up to higher returns if the Fed hikes rates.
Most importantly, if inflation continues to rise, which it will do in the interim, it positions you to have some flexibility to make adjustments as you see fit. A five-year CD now at 4.00% might sound tempting, but if inflation continues to creep back up to 4.00%, you might regret your choice later.
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