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Inflation has run hot thus far in 2024. Although January’s 3.1% inflation rate was lower than December’s 3.4% rate, it was higher than economists expected. And, in February and March, price growth started to speed up across the United States – with inflation rates in those months coming in at 3.2% and 3.5%, respectively.
But, that may be good news for savvy savers. After all, inflation and interest rates usually increase at the same time. So, interest rates, and in turn, earnings on many deposit accounts, are high at the moment. And, if inflation continues ticking up, the Federal Reserve could push its federal funds rate higher – which could drive consumer interest rates up. Then again, if inflation begins to cool, the Fed could cut rates. That could lead to lower earnings on deposit accounts ahead.
With this uncertainty in the air, you may be at a loss for what you should do with your savings ahead of the coming inflation report. Find a few smart savings moves you should make ahead of the release of April’s inflation data below.
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3 savings moves to make before the next inflation report
Here are three smart savings moves you should make before the next inflation report is released on May 15.
Open a CD
A certificate of deposit (CD) gives you the ability to lock in today’s high returns for the entire life of the account. “CDs are a good option if you have a chunk of money that you won’t need access to right away,” explains Brian Kelly, senior vice president and retail market manager at Rockland Trust Bank. “They generate a fixed interest rate that is typically higher than a traditional savings account.”
That’s important with inflation uncertainty in the air. After all, if April’s inflation data shows cooling from March’s high inflation rate, it could be a signal that the Fed may cut its target federal funds rate ahead. As such, financial institutions may start to reduce their CD and savings account APYs in anticipation of a potential Fed rate cut.
But, if you open your CD before the next inflation report, you can rest assured that, regardless of the state of inflation, you’ll earn a meaningful return on your money for the entire term of the account.
Compare today’s leading CD accounts now.
Open a high-yield savings account
High-yield savings accounts come with variable interest rates that may change as the federal funds rate rises and falls. But that offers you an opportunity to hedge your CD bets ahead of the next inflation report.
After all, if that report shows continued growth in inflation, it could be a signal that the Fed may increase interest rates ahead. If your savings is tied up in a CD, you won’t be able to take advantage of those potentially higher returns.
So, it may be wise to open a high-yield savings account and spread your savings between it and a CD. In doing so, your fixed rate CD will protect your earnings on your savings if inflation cools and rates fall while your high-yield savings account can produce earnings growth if inflation continues to come in hot and rates rise.
Transfer money out of accounts that earn nothing
No matter whether you open a CD, a high-yield savings account or both, it’s important that you take advantage of today’s high interest rates as prices continue to rise. Many of today’s traditional savings accounts fail to keep up with inflation (only earning an average 0.46% per year). Leaving your money in these accounts will lead to a loss of buying power as prices grow at a faster rate than your savings.
But, it’s easy to avoid that scenario. Pull your money out of any account you have that’s earning nothing, or little to nothing. Then, deposit that money into a CD or high-yield savings account with a return that outpaces inflation to grow the power of your savings rather than lose it.
Open a high-yield savings account today to earn a meaningful return on your savings.
The bottom line
In today’s inflationary environment, it’s important to make wise savings decisions. After all, leaving money in accounts that produce little-to-no earnings will only result in your money being less effective. Moreover, with the inflation report just around the corner, now may be the time to act.
Consider spreading your savings across a CD and high-yield savings account today. In doing so, you’ll lock in today’s high rates with a portion of your money while making it possible to take advantage of higher rates in the future on the rest of it (should those higher rates materialize). In either case, spreading your funds across leading CDs and high-yield savings accounts could mean that your savings produces an inflation-adjusted return rather than a loss.
