Save more when money counts less due to inflation

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When it comes to purchasing power, inflation means things are getting more expensive and your money is worth less. When a period of high inflation hits – like it is right now – you should consider changing the way you manage your finances to protect the value of your money.

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

Through the Federal Reserve, the government is trying to fight inflation on a large scale by raising the federal funds rate, the rate that commercial banks use to lend and lend to each other.


As the cost of borrowing rises, higher interest rates seep through to consumer goods like loans and mortgages, making them more expensive. But higher interest rates can also apply to deposit accounts, which means banks are beginning to offer higher interest rates on checks, savings, and certificates of deposit.

No one knows what the future will bring, but by making changes to how you spend your money and where you keep your money, you might be able to weather periods of inflation more easily.

Here are some ways to save more in times of inflation.

It can be frustrating not being able to easily get credit for big purchases in times of high inflation. Still, consumers can take advantage of higher interest rates on bank accounts to combat the impact of inflation on their cash. Interest rates on bank accounts don’t typically outpace inflation, but these accounts can do a far better job of protecting against inflation than keeping cash at home or in an account with low interest rates.

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

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

Some people take even more radical steps to save money. Amanda Claypool, a financial blogger from upstate New York, recently made major lifestyle changes to keep her expenses down in the face of inflation. She spent 2021 living out of her car while driving across the country and plans to return to that way of life soon to save on housing costs. She’s also tried to cut her budget by biking 16 miles round-trip to work and eating more rice and beans, a cheap but healthy meal.

“I’m concerned about rising food costs and the impact this will have across the supply chain,” Claypool said via direct message. “I’m using the time now to prepare for future food insecurity by learning what food my body actually needs versus what I like to eat. This may seem drastic, but it helps me save money in the short term and eat better.”

Not everyone can or wants to upgrade their car, but Claypool’s austerity tactics can work on a smaller scale. You can bike more often instead of driving everywhere, and you can reevaluate your food budget to add more cheap healthy meals. For a bigger change, you could downsize your home to save even more money.

It’s a good idea to keep short-term cash — like an emergency fund — available in a savings account, but if you have savings that you don’t likely need for a year or more, you might want to consider investing those funds or buying a government bond.

“For someone who has a lot of money on the sidelines,[investing]could help you not lose money,” says Russell. “Perhaps more people are willing to take more risk because they want a higher return.”

Russell also recommends consumers look into TreasuryDirect Series I savings bonds, which can offer interest rates in excess of 7% on up to $10,000 over a one-year term. These bonds are basically like a certificate of deposit: you put your money into one for a year, and at the end of the year you have a guaranteed rate of return that hopefully stays higher than the current rate of inflation – so your money wins. not lose value.

The government will continue to review inflation data and make changes to the Federal Funds Rate accordingly. However, there are other factors that could dampen inflation in the coming year, such as changes in global supply chains that could free up inventories and lead to lower commodity prices. Whether inflation is rising or falling, it’s a good idea to keep an eye on ways to optimize your savings.

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