Where to get the best rates on your savings amid rising inflation
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New government data suggests that consumers are experiencing sticker shock. annual inflation risingThe fastest rate in over 30 years.
In September, headline inflation (food and energy prices) rose at 4.4% annually, its highest rate since 1991. Higher prices are likely to continue for the foreseeable future, and low interest rates mean that inflation may be taking away from another area of importance for consumers: emergency savings.
Therefore, it may be a good idea to reconsider where your cash is being deposited. It’s tempting to seek higher returns but it is best to be conservative.
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DepositAccounts.com founder Ken Tumin said, “With cash, you need to keep it safe if it is intended for an emergency fund or short-term expense.” It is not suitable for stocks, bitcoins, or any other type of investment.
There are usually only few choices for emergency money. Each has potential drawbacks and benefits.
Online accounts
Tumin says that an online account for savings or checking can help you keep it simple.
Tumin explained that liquid currency allows one to always move the money if it falls or if there is a better rate somewhere else. This is important especially if inflation concerns you.
Accounts with high yield checking
Tumin reports that many U.S. banks, credit unions offer high-yield checking accounts with reward checks.
Some accounts pay as little as 3% on deposits up to 10,000.
That beats the average savings account, which may have interest rates as low as 0.14%.
As with other accounts, they often have strings attached like the need to regularly use a debit card.
There are also potential benefits, like no monthly fees or 2% cashback on purchases up to $200 per month.
Savings bonds
Tumin says that I bonds are indexable to inflation and offer a unique advantage.
I bonds, unlike other investments allow you to defer federal tax until you redeem the bond or when they reach maturity of 30 years.
But there are also some compromises. There is a downside. You are restricted in how much money you can put into your portfolio per year.
The money cannot be redeemed within 12 months from the date of issue. You may also lose the interest for three months if you withdraw the money within five years. Tumin said that this is better than the penalties associated with early withdrawals of five-year certificates or deposits. These can cost as much as six months interest.
Deposit certificates
Tumin stated that CDs are not the best time to invest because of their current low rates. You could lock that rate long-term if you make an investment now.
This could cause regrets in the event that interest rates increase over the next few years.
A second thing you should be wary of with CDs is the harsh early withdrawal penalties. Tumin stated that CDs are available from about 12 online banks and they won’t penalize you for withdrawing your funds early.
Shopping around can prove to be very profitable.
Tumin stated, “The only reason you should get a CD is if you get substantially more at your savings rate.”
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