How to Protect Your Savings as Inflation Concerns Return
How to Protect Your Savings as Inflation Concerns Return
With inflation showing signs of resurgence and economic uncertainty on the rise, protecting your savings has become more important than ever. Here’s what financial experts recommend.
Understanding the Threat
Recent economic data has raised concerns about renewed inflationary pressures:
- Core inflation ticked up to 3.4% in the latest reading
- Energy prices remain volatile
- Labor costs continue to rise in many sectors
For savers, this means money sitting in low-yield accounts is losing purchasing power every day.
Strategy 1: Optimize Your Cash Holdings
High-Yield Savings Accounts The best online savings accounts are currently offering 4.5-5% APY. If your money is sitting in a traditional bank account earning 0.5%, you’re leaving money on the table.
Money Market Funds These funds invest in short-term debt and currently yield around 5%. They’re a good option for funds you might need within the next year.
Strategy 2: Consider Treasury Inflation-Protected Securities (TIPS)
TIPS are government bonds that adjust their value based on inflation. The principal increases with inflation, protecting your purchasing power.
Pros:
- Government-backed security
- Direct inflation protection
- Available through TreasuryDirect.gov
Cons:
- Lower base yields than regular bonds
- Tax treatment can be complex
- Less liquid than some alternatives
Strategy 3: Diversify Into Real Assets
Historically, real assets have provided some inflation protection:
- Real estate: Property values and rents tend to rise with inflation
- Commodities: Direct exposure to goods that become more expensive
- Infrastructure: Essential assets with pricing power
Strategy 4: Equity Allocation
Stocks of companies with pricing power can pass increased costs to customers. Consider:
- Consumer staples companies
- Healthcare providers
- Utility companies
- Companies with strong brands
What to Avoid
- Long-term bonds (values fall when interest rates rise)
- Excessive cash holdings in low-yield accounts
- Speculative investments during uncertain times
Action Steps
- Review your current allocations – How much is in low-yield accounts?
- Set up a high-yield savings account – Transfer emergency funds there
- Consider adding inflation protection – TIPS or I-Bonds for a portion of savings
- Consult a financial advisor – Get personalized advice for your situation
The key is taking action now rather than waiting until inflation has already eroded your purchasing power.