Stocks can be the best way to protect your savings against inflation, but it’s also wise to keep cash on hand for emergency funds, expenses, and short-term financial goals. Yet while there isn’t much you can do to protect your cash flow in today’s low yield,, there are ways to maximize the return on your cash flow to minimize the effects of inflation.
Online savings accounts
Online savings accounts have long been considered a great place for your money. They’re as secure as traditional bank savings accounts, but they have a history of rates up to eight times higher. Today’s online savings account rates may be lower than today’s inflation rate with such low returns, but they’re still a good option for your emergency fund.
One reason: Online savings accounts are liquid, so you can quickly transfer funds to your checking account to pay your bills. It also allows you to make transfers to other online savings accounts that offer better rates.
In today’s environment, many banks, including digital banks, have too many deposits, which has contributed to record deposit rates. However, a few banks are still trying to attract deposits by maintaining competitive interest rates. For savers, it is especially important now to research these banks, as transferring your money to a higher rate online savings account can easily double your return without adding risk.
High yield chequing accounts
If you are looking for higher online savings account rates, another deposit account to consider is the High Yield Reward Checking Account. To be eligible, you must meet the monthly requirements of using your debit card to make eight to 20 purchases per month. When you meet these requirements, you are rewarded with a high return, which can range from 1% to 4%.
Most high yield checking accounts are free with no monthly service fees, even if you don’t meet the monthly requirements. These accounts also all have balance caps, so only balances up to a certain amount are eligible for the high rate. Balance limits generally range from $ 5,000 to $ 25,000.
Series I Savings Bonds
Neither an online savings account nor a high yield checking account is guaranteed to keep up with inflation. However, there is one primary risk-free investment that is guaranteed to keep up with inflation: the Series I Savings Bond (I Bond).
Available from the US Treasury, an I bond offers a total interest rate that combines a fixed rate and an inflation rate. When you buy an I bond, the fixed rate at the time of purchase remains unchanged until the I bond matures or is redeemed. The inflation rate changes every six months based on inflation. In recent years, the fixed rate has reached 3.60%, but at the moment it’s zero. However, it allows your investment to keep pace with inflation.
Notably, however, there are three significant drawbacks to Bonds I. First, you can only buy a maximum of $ 10,000 per calendar year online from the Treasury, although you can buy an additional $ 5,000 per year through your federal tax refund. So I Bonds may not be enough for your cash savings.
Also, when you buy an I Bond, you can’t access it for at least a year. You can redeem Bond I after that, but there is a three month interest penalty if you redeem within the first five years. However, this penalty is slight compared to the early withdrawal penalties of most bank CDs.
Remember, you don’t necessarily have to choose between the options above. When investing, diversification is essential for reducing risk and maximizing long-term returns, and it can also be useful for maximizing returns on your cash savings. Using a combination of online savings accounts, high yield checking accounts, and I Bonds can help you keep your money at a rate at least close to inflation.
Most importantly, it will keep your money safe and liquid for future short-term goals, expenses, and emergencies.
Ken Tumin is Founder and Editor-in-Chief of DepositAccounts.com, which has been tracking and evaluating savings, CD and checking account offerings from banks and credit unions for more than a decade.