You can’t beat inflation, but you can protect your savings

Sarah Tew/CNET

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Like inflation keep soaring, and the prices of everyday items like gas and groceries keep rising, you may be looking for ways to get the most out of your bank account. With the annual rate of inflation reached a high of 40 yearssaving money in a typical bank account that pays close to 0% interest can actually mean losing money. For example, if you invested $100 in savings last year, given the current 7.9% rise in inflation and current savings account average rate 0.06%, that same $100 is worth closer to $92 today.

Your $100 is still there, safe and sound, but due to inflationthe value of every dollar is now lower.

Policymakers at the Federal Reserve raised the overnight bank borrowing rate 0.25% in March to help contain inflation. In theory, we should see this move trickle down to the personal savings market and help lift returns. But until then, the average return on the savings account remains close to 0%.

So what can we do? Are there relatively low-risk ways to save for higher rates of return? Yes. Here are four strategies which can help minimize the impact of inflation on your savings.

1. High Yield Accounts

Some newer, digital-only financial institutions or neobanks offer higher savings rates of 2-4%, which does not outpace inflation but is much better than average. For example, Running announced earlier this year a new high-yield savings account called “Interest” that offers users an annual percentage return of 4%.

Pro Tip: Consider these types of accounts for a savings goal in the next six to twelve months. Be careful parking your emergency funds here, as neobanks tend to be part of limited ATM networks and your money may be harder to access at a glance. Also, make sure the neobank has FDIC insurance that can protect your savings in the event the institution goes bankrupt.

2. Accounts with sign-up bonus

In an effort to attract new customers in today’s competitive market, some banks offer sign-up bonuses and “welcome” benefits to new customers with current accounts. For example, the Chase Total Checking account offers a $225 account bonus when you fund a new account via direct deposit.

Pro Tip: Be sure to follow all account minimum auto deposit rules to avoid monthly fees. If you cannot meet these minimums, the sign-up bonus may not be worth the cost of maintaining that account.

3. I-Bonds

I-Bonds are a relatively safe investment backed by the government sold directly to the public which tracks your money in line with inflation.

The current I-Bond savings rate is 7.12% and is calculated using a fixed rate and an inflation rate determined twice a year. These accounts are not as liquid as bank savings accounts. You need to stick with it for at least a year. Although you can withdraw your money after that, you risk losing the last three months of interest earned by doing so. After five years, you can withdraw your money without penalty.

Pro Tip: Park money here that you plan to use for medium-term savings, such as a down payment on the house you expect to need in the next five years. Keep in mind that the limit is $10,000 per year. Any money you won’t need for five years or more can allow you to take on more risk, and investing in the stock market may be a good idea.

4. Inflation-protected Treasury securities

Finally, TIPS are a popular bond instrument during times of high inflation because its value follows the rate of inflation and adjusts twice a year.

As a government-backed bond, your investment will never lose its original value, even if inflation goes the other way.

TIPS are generally a complement to retirement portfolios, but you can avoid transaction fees by purchasing them directly from the US Treasury Department website in terms of five, 10 and 20 years.

Pro Tip: Take it easy. Leave your emergency savings in an FDIC-insured savings account that’s super liquid and accessible. Only consider TIPS for some of your extra savings that you don’t expect to need for at least five years.

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