Chris Taylor

NEW YORK (Reuters] – The current situation is a minefield for cash savers.

The interest rates for common places to save money like savings accounts are at an all-time low.

Meanwhile, inflation rates are the highest they have been in decades – consumer prices in the United States surged in February to a 7.9% annual growth rate, according to the Labor Department.

It means your saving power decreases month by month.

Roger Young is the director of thought leader at Baltimore-based T. Rowe Price. He says, “We are certain getting more questions regarding inflation.” We have the privilege for years to not worry about inflation, so this is an excellent reminder that it shouldn’t be overlooked.

The mainstay of your short-term savings is cash. This could be a fund with three to six month’s worth of expenses for unexpected costs such as job loss, car repair or other emergency situations. If you’re saving money for a downpayment on a home, it is possible to run out of cash.

There aren’t many options when it comes to where you should keep your money. Some strategies work better than others, however. This is how to spend that cash.

SAVINGS ACCOUNTS & CDS

Federal Reserve indicated that we will see higher interest rates in the future in order to reduce inflation. Therefore, it is important for savings accounts and basic banking services like checking accounts to have more attractive rates. The effects of higher interest rates have so far been minimal.

Bankrate, a personal finance website, surveyed the top savings accounts rates in March. Top results included Comenity Direct (0.6% annual percentage yield). Barclays Online (0.5%), Ally Bank Online (0.5%).

While Certificates Of Deposit provide slightly higher returns, they often require you to keep your money locked up for a long time. According to Bankrate, the best 2-year CDs are currently: Popular Direct (1.1%) & Live Oak Bank (1.5%).

SHORT-TERM BONDS

When interest rates rise, it is common for long-term bond fund holders to be hit very hard. But short-term bond funds can be a useful place to keep your cash – generating more potential return than savings accounts, while offering less risk than longer-duration fixed income.

Morningstar, a Chicago-based research company, has given gold ratings to Vanguard Short-Term Corporate Bond Index VSTBX (TSIDX), T. Rowe price Short Duration Income I TSIDX and PIMCO Enhanced Long Duration Active ETF (LDUR).

TIPS, or Treasury Inflation Protected Securities (TIPS), offer some security. Their principal increases with the inflation rate. Matt Bacon from Gaithersburg, Maryland, advises that TIPS offer the most protection of all of the poor choices.

DIVIDEND-PAYING STROCKS

You should consider dividend-paying stock options for higher yields. While the yield on this stock is approximately 1.4% on average, there are many high-quality companies that will pay more than 2 to 3%. That’s many times the rate available in savings accounts.

But there are some potential risks. There are a few risks. The value of the securities could decline anytime, which means that if you have to sell, it is possible you will be facing financial difficulties. Companies can cut dividends in difficult times, so it is important to choose firms with a track record of increasing and maintaining payouts like the Dividend Aristocrats.

HIGH-INTEREST CARD DEBT

Paying down high-interest credit card debt is a great way to make sure your emergency fund is stocked. You can think of it as a 15 percent return if you get rid of the revolving debt on a credit card that charges 15% per year.

This is more difficult when it comes to student, mortgage, and car loan debt. These may all be locked in at low long-term rates. It is best to get rid of credit card debt quickly with cash reserves.

While these are a few ideas to get slightly better returns on your savings, do not go overboard and take on too much risk – which defeats the purpose of having cash in the first place.

Marco Rimassa from CFE Financial, Katy Texas states that cash is not something you should be fussing about. Cash is a good risk-distributor, especially in volatile investment environments.