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Protecting Your Savings From Inflation

Protecting Your Savings From Inflation

Even though inflation has slowed as we've entered 2024, with some experts saying it's peaked, that doesn't necessarily mean prices are decreasing. Instead, prices aren't increasing as rapidly as they were during the beginning and middle of the year. So it's best to keep inflation in mind when planning for the future.

We'll further discuss inflation's impact on your savings and explain some ways to safeguard your savings from inflation's impact.

Inflation's Impact on Your Savings

If you've ever heard an elder talk about how "in their day an ice cream cost (x amount of cents)," that's because inflation is a consistent part of the monetary system. As time goes on, prices steadily climb. Generally, this is fine, but that's because wages tend (or are expected to) keep pace with inflation. So, if prices double over 50 years, then wages should follow.

However, during spikes of inflation, like the ones we experienced, wages weren't keeping up with inflation. In other words, our costs increase faster than our income, which can be a significant problem, especially for those struggling to pay bills or save in the first place.

The primary impact inflation has on your savings is that the interest rate you are receiving from your bank is lower than the inflation rate. So, over time, your savings are losing value even if you're not drawing any money out of them. With this in mind, it's essential to reconsider your savings and take some steps to ensure that you are financially secure.

Reviewing Safe Savings Options

To beat inflation, you'll have to put some money into accounts that earn higher interest than a traditional savings account. However, this often involves more risk than putting the funds in an FDIC-insured account.

  1. 401(k): Although inflation is high currently, historically, it floats around 3%. Therefore, you should look for investments that return at least 3%. 401(k)s, for example, return between 3% to 8% on average, making them a great way to save your money for retirement.
  2. I bonds: Government I bonds earn a fixed rate plus an inflation rate, making them a good investment during inflationary periods. For example, I bonds issued between November 2023 and April 2024 promise a return of 5.27%.
  3. Stocks: Returns on stocks generally outperform inflation. However, investing in the stock market can be risky because it can be very volatile. If you want to invest your money safely and minimize risk, consider investing in an exchange-traded fund (ETF). ETFs invest your money in a wide range of individual stocks to reduce risk in any single investment. They also usually have lower fees than indexes.
  4. Precious metals: Dedicating a portion of your portfolio to precious metals is another excellent way to increase returns and diversify your portfolio. Also, consider investing in precious metal ETFs if you want to be even safer with your precious metal investment.

Other Methods for Safeguarding Your Savings

  1. Certificates of Deposit: Certificates of Deposit (CDs) allow you to lock up funds for an agreed-upon portion of time with a financial institution. While your money is in a CD, it earns interest for you once the time requirement is over and you withdraw your funds. 12-month CDs often pay about 3%, whereas longer CDs may provide a higher return. CDs are a safe way to ensure that you accrue interest on your funds; however, withdrawing your money too early will incur significant fees. Therefore, it's best not to put the cash you'll need for the immediate future in a short-term CD.
  2. Online Savings Accounts: Online savings accounts generally earn little interest (between 1.50% to 2%). However, there are online savings accounts that will only penalize you for withdrawing funds. Moving any liquid cash into a savings account that will pay you higher interest while allowing you to withdraw without incurring fees may be worthwhile.

Credit Cards and Inflation

Credit card APR rates typically increase during inflationary periods. Hence, paying your credit card balance in full each month is essential. Better yet, try to reduce your spending on credit cards or stop using credit cards altogether if you're unable to pay the balance in full each month. Bonus reward credit cards can help with inflation if you can pay off the card in full to reap the benefits. However, your credit card rate typically will outpace the rewards that you earn.


High inflation can seriously eat into your savings. However, there are other ways you can beat or at least fight inflation. While some of these are higher risk, like investing in the stock market, they have the potential to make your money grow that much more. If you want to ensure your money is as safe as possible, other options will help dampen inflation's effects on your savings. But, of course, it all depends on your available options and your tolerance for taking risks.

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