Should You Keep Money in Savings When Inflation Is Surging?

You may be looking for ways to protect your cash with inflation near 40-year highs.

Inflation is the rising cost of goods and services. It's a natural part of life, and no one can expect that prices will stay stagnant forever. But unfortunately, inflation is very high right now. It surged to 9.1% in June, which means the cost of most things people buy is up almost 10% year-over-year.

Inflation is not good for savers, for obvious reasons. If you have money just sitting in the bank earning a 1% or 2% return and prices go up 10%, the cash you have in that account will not buy you as much as it used to. You'd end up with around $101 to $102 by the end of the year while you'd need $110 to buy the same amount of goods and services.

So, since the money in your savings account is just sitting there losing value, the big question is, should you keep money in that account or do other things with it?

What should you do with your savings during times of high inflation?

Whether you should keep money in savings when inflation is surging depends on the purpose of that money.

If you have money you've saved for emergencies or that you are going to need to spend on a big purchase within a short period of time, then you should absolutely keep it in a savings account. While it is true the money is losing some value right now because the returns that it earns are below the rate at which prices are rising, the reality is that the funds are still safe from big losses in a savings account as long as the account is FDIC insured. And the money is readily accessible if and when you need it for surprise costs or for your large purchase.

If the money is supposed to be an investment, though, and if you won't need to access it for several years, then you may not want to just let it sit in a savings account to lose value. Instead, you may want to explore moving the funds to a brokerage account where you can make investments that will hopefully earn returns that come close to, or even equal or exceed, the rate of inflation.

Ultimately, if you have "extra" money and it isn't worth paying the price of losing buying power just to keep the funds accessible and to avoid the risk of loss, then you shouldn't have those funds in savings right now.

Making the most of your savings account

Since everyone has some money they need to keep in savings for emergencies and for short-term purchases, you will want to research high-yield savings accounts.

If you can find an account that pays a reasonable rate of interest while still allowing you safety and access to your funds as needed, this can help you limit the damaging effects of inflation on your savings account balance.

The good news is, there are many great savings accounts out there to look into, as well as brokerage accounts where you can keep the money you plan to invest.