Our experts answer readers' investing questions and write unbiased product reviews (here's how we assess investing products). Paid non-client promotion: In some cases, we receive a commission from our partners. Our opinions are always our own.
According to a report from the U.S. Bureau of Labor Statistics released Tuesday, prices in January were 3.1% higher than they were one year earlier. The cost of food away from home rose 5.1% and the cost of food at home rose 1.2%.
While increased costs can stretch your budget on monthly essentials, there is a silver lining. When inflation is high, the Federal Reserve typically raises rates in an effort to encourage saving and lessen consumer spending. For those looking to save money in deposit accounts, this could be good news.
Advertisem*nt
Here are some smart moves you can make to get the most out of your money when inflation is high:
Shop around for higher interest rates on savings
Increased inflation generally corresponds with higher interest rates paid by high-yield savings accounts. If you have a large amount of cash in the bank, such as a fully funded emergency fund, see if you can find a savings account that pays more.
High-yield savings accounts are designed to make your money grow in a way a typical savings account can't. Right now, high-yield savings accounts are offering up to 6% interest, so this could be a great place to store an emergency fund or other cash that you may need in the short term.
This could also be a great time to open a CD. A certificate of deposit (CD) is a type of bank account that can offer higher interest rates than a traditional savings account in exchange for keeping your money in the account for a set period of time, which can range from a few months to five years.
Advertisem*nt
The best CD rates right now are north of 6%, so you have another strong opportunity to see a return on money, but specifically money that you will not need in the short term.
Keep investing for long-term goals
If you’re investing for long-term goals such as retirement, just keep doing what you’re doing. Every period of inflation is different, and a diversified investment portfolio is ideal for weathering economic ups and downs.
Even if you see a few losses, over time your portfolio will rebound, which is why you invest over the long-term. The longer you invest, the less inflation will impact your bottom line.
Keep what you will need in cash, but not too much
There is no reason to pull money out of your investments or to stop investing. As previously mentioned, now could actually be the perfect time to invest in longer-term financial vehicles.
Advertisem*nt
That said, you should still keep cash on hand(in an FDIC-insured bank account) for the following:
Money to pay your immediate bills and expenses
Your emergency fund (three to six months worth of expenses)
Savings for short-term goals (things you will need money for in the next year)
If you want access to more cash, you can always add to your emergency fund.But if you have a decent amount saved up already, don't overlook high-yield accounts that can get the most out of your money during periods of high inflation.
Boost Your Savings Western Alliance Bank's savings account offers an industry leading APY. Start earning more on your savings today.
Senior Personal Finance Reporter and Spokesperson
Jennifer is a Senior Personal Finance Reporter and Spokesperson for the Personal Finance vertical at Business Insider. She started her career covering personal finance at Black Enterprise Magazine, went on to CNBC where she covered personal finance, women and money and tech and then Forbes, where she reported on personal finance, business, tech and money matters related to the economy, investing, credit and entrepreneurship. Jennifer is also the author of Thrive!...Affordably: Your Month to Month Guide to living your Best Life without breaking the bank. The book offers advice, tips and financial management lessons geared towards helping the reader highlight strengths, identify missteps and take control of their finances. In addition, she has extensive experience as an on-air financial commentator and has been a featured expert discussing credit and savings, investing and retirement, mortgages and all things money and personal finance. She has an ability to discuss and simplify complex financial issues and make them easier to understand. Follow her on Twitter @jstreaks.
