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. And cumulative inflation shows the real impact consumers continue to face. Bankrate found prices are over 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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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, like 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 over the next year from the Federal Reserve.
While that is unlikely, given the weak job numbers, inflation could prompt the Fed to continue its wait-and-see approach. And 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?
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 a while — 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, like a high-yield savings account, money market accounts come with variable interest rates. So, 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:
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.
Related content
-
From Job Loss to Free Agent: A Financial Professional's Transition Playbook (and Pep Talk)The American workforce is in transition, and if you're among those affected, take heart. You have the skills, experience and smarts that companies need.
-
A Financial Planner's Top Five Items to Prioritize When Your Spouse Is IllDuring tough times, it's easy to overlook important financial details, but you'll be so much better off if you take care of these things right now.
-
From Job Loss to Free Agent: A Financial Professional's Transition Playbook (and Pep Talk)
The American workforce is in transition, and if you're among those affected, take heart. You have the skills, experience and smarts that companies need.
-
A Financial Planner's Top Five Items to Prioritize When Your Spouse Is Ill
During tough times, it's easy to overlook important financial details, but you'll be so much better off if you take care of these things right now.
-
'Rich' Tricks to Volunteer and Donate in RetirementThere may be some tax benefits to giving back in retirement.
-
An Expert Guide to Outsmarting Inflation: Don't Let It Restrict Your RetirementInflation is often underestimated when estimating retirement income, education funding or investment returns. These strategies can help preserve your purchasing power and reduce your financial anxiety.
-
Use Your Next Vacation to Explore Your RootsWith some research and preparation, you can design a meaningful tour of your family’s ancestral home.
-
One Big Beautiful Bill, One Big Question: Will We Keep Giving?The rules on charitable giving are changing. For some, tax deductions for donations are now an option. For others, that option may have been curtailed.
-
Five Destinations for Active and Chill Travelers AlikeWhether you reach for a paddleboard or a lounge chair, find your groove in a location that offers something for both kinds of travelers.
-
My First $1 Million: Federal Civil Servant and Analyst, 55, HawaiiEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
