Consumers are likely to experience sticker shocks as new government data shows that annual inflation is rising at the fastest pace in more than 30 years.
So-called overall inflation, including food and energy prices, rose by 4.4% annually in September, the fastest since 1991. With higher prices likely to remain so far and interest rates still low, inflation may also pick up. a bite of another important area for consumers: their emergency savings.
Therefore, you may want to re-evaluate where your cash is deposited. While it may be tempting to chase higher returns, it is still best to take a conservative approach.
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“With cash, if it’s meant for something like an emergency fund or a short-term expense, it needs to be kept safe,” said Ken Tumin, founder and editor of DepositAccounts.com. “Stocks or bitcoin or other types of investments are not appropriate for that.”
There are generally a handful of options for emergency supplies. Each offers potential advantages and disadvantages.
If you want to keep things simple, an online savings or checking account may be the best way to go, Tumin said.
“By being liquid, you always have the option to move it if the price falls or if you find a better price somewhere else,” which is especially important if you are worried about inflation, Tumin said.
High yield checking accounts
Many U.S. banks and credit unions currently offer high-yield reward checking accounts, according to Tumin.
Some offer accounts that pay at least 3% interest on deposits of up to $ 10,000.
It beats the average savings account, which can have interest rates as low as 0.14%.
Like other accounts, these often come with some strict attachments, such as requiring regular use of debit cards.
Still, there are other potential perks, such as no monthly fee or 2% cash back of up to $ 200 in purchases per. month, for example.
Investing in I-bonds provides a particular benefit in today’s environment because they are indexed to inflation, according to Tumin.
Unlike some other investments, I-bonds allow you to defer federal taxes on the money until you redeem them or they reach their 30-year maturity.
However, there are some trade-offs. One downside is that you are limited to how much you can invest per year, which is currently $ 10,000.
You can also not redeem the money within the first 12 months after the date of issue. If you withdraw the money within the first five years, you could lose three months’ interest. But that beats the early withdrawal penalties for some five-year certificates of deposit, which can be at least six months’ interest, Tumin noted.
Certificates of deposit
In general, this is not a good time to invest in CDs, Tumin said, due to the fact that their prices are currently at the lowest level. If you invest now, you can lock that interest rate in the long run.
It can lead to regret if interest rates rise over the next year or two.
Another thing to be aware of with CDs: harsh penalties for early withdrawal. But about a dozen online banks now offer CDs that will not penalize you for taking your money out early, Tumin said.
It therefore pays to shop around.
“The only reason to get a CD would be if you could get significantly more than what you can for a savings account,” Tumin said.