“Inflation is a time for investors and savers to reevaluate their strategies,” says Walter Russell, CEO of financial adviser firm Russell and Company.
Through the Federal Reserve, the government tries to combat inflation on a large scale by raising the federal funds rate, which is the interest rate that commercial banks use to borrow and lend money to each other.
When the cost of borrowing becomes more expensive, higher interest rates trickle down to consumer products such as loans and mortgages, making them more expensive. But higher interest rates may also apply to deposit accounts, meaning that banks start to offer higher interest rates on checking, savings and certificates of deposit.
No one knows what the future will bring, but by making changes to how you spend and where you keep your money, you may be able to weather times of inflation more easily.
Here are some ways to save more during periods of inflation.
Look for high-yield interest rates
It can be frustrating to not be able to get loans for big purchases as easily during periods of high inflation. Still, consumers can take advantage of higher interest rates on bank accounts to fight the effects of inflation on their cash. Bank account interest rates usually don’t totally beat the rate of inflation, but these accounts can help hedge against inflation far better than keeping cash at home or in a low-rate account.
The national average annual percentage yield for savings accounts is 0.06%, according to the Federal Deposit Insurance Corporation, but there are plenty of financial institutions that offer rates that are much higher — some even 1.00% APY or more. To find these rates, you can research high-yield or high-interest accounts and choose the bank that works best for you.
Find ways to keep costs low
If you haven’t looked over your budget in a while, now may be a good time. During the pandemic, you may have subscribed to multiple streaming services that you don’t use anymore, or you might be spending more money dining out or paying for more convenience services now.
Some people are taking even more radical steps to save money. Amanda Claypool , a financial blogger based in upstate New York, has recently made larger lifestyle changes to keep her costs low in the face of inflation. She spent 2021 living out of her car while driving around the country and plans to return to that way of living soon to save on housing costs. She’s also been trying to trim her budget by biking 16 miles round-trip to work and by eating more rice and beans, a cheap but healthy meal. READ MORE...
