Personal Finance

Stop Inflation in Its Tracks and Keep Your Money Safe at the Same Time

Marc Guberti

Published: February 1, 2025 9:49 am

Inflation has been a constant for multiple decades. The Federal Reserve regularly prints new money, and the government regularly spends it, resulting in a continuous inflationary cycle.

Inflation typically goes up by 2% per year, resulting in more expensive products and services. Money tucked away under the mattress will gradually lose purchasing power.

This realization has prompted some people to invest their money, but that also comes with risks. For instance, some investments lose value, and not everyone in the stock market has the patience to weather volatility and corrections.

Luckily, there is a way to beat inflation without risking your money in assets like dividend stocks and real estate. If you’re looking for a risk-free way to beat inflation, you may want to consider a high-yield savings account.

Why Try to Beat Inflation?

You can keep your money tucked away in a safe checking account, but it’s not as safe as you think. That’s because your dollars become less valuable over time if they are not growing.

Companies regularly raise their prices to deal with rising costs and higher demand. The government also regularly spends more money and pushes the national debt higher. All of these factors result in a deteriorating fiat currency that gets worse if it’s not growing.

The older you are, the more you can appreciate keeping up with inflation. While the economic aftermath of lockdowns resulted in 40-year high inflation, goods, and services have always been getting more expensive. If you ask someone what they could have bought with $50 in the 1980s, you’ll get a very different answer from what someone can do with $50 today.

Real estate is an inflation hedge. It comes with risks, but the asset’s status as an inflation hedge means that real estate prices tend to go up each year. It’s not a risk-free investment, but if you plan to own a home in the future, you have tokeep up with inflation.

How High Are Savings Account Yields?

A high-yield savings account can help you keep up with inflation. Many of these accounts have APYs that are higher than the rate of inflation. You can typically find high-yield savings accounts with APYs ranging from 2.00%-4.00%, and you don’t have to park your money into a CD to get those rates.

A 2.00% APY on a $10,000 savings account nets $200 in interest each year. A 4.00% APY results in an additional $400 per year. Making more deposits and keeping your money in your savings account will increase how much you earn.

High-yield savings accounts are safer than stocks and real estate since they are insured by the FDIC. Your account is protected up to $250,000 and isn’t prone to fluctuations. If you put $10,000 in your savings account, it will remain at $10,000 plus interest.

Keep Tax Rates in Mind

One thing to keep in mind when using a high-yield savings account to beat inflation is that the interest you earn is treatedas ordinary income. If your top dollar is in the 24% bracket, a 2.00% APY turns into a real rate of 1.52%. You should also consider your state income tax rates, if applicable.

A 4.00% APY still allows you to beat inflation. At a 24% tax rate, a 4.00% APY turns into a real rate of 3.04%. These yields beat the alternative of a low APY checking account or investments that end up losing value.

If you have a lower tax rate, you’ll get to keep more of your interest income. Living in a state without any state income taxes will also increase how much you end up keeping.

What Else to Consider Before Choosing an Account

A high-yield savings account is a great resource for your finances. Even if you prefer to buy stocks and real estate, having a high yield for an emergency savings account will lead to extra cash.

Before committing to a bank with the highest yield, you should look at the financial institution’s additional features and products. Does the bank have viable loans, credit cards, and other products that you want to use? Does it have features that can help you save and earn additional money?

Reviewing everything that each bank has to offer will help you decide on the right financial institution for your high-yield savings account and other long-term goals.