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Inflation is crushing Americans' savings -- here are 6 tips to protect your money

Sarah Foster, Bankrate.com on

Published in Home and Consumer News

Building up a stable cushion of cash you can rely on in emergencies seems daunting even in normal economic times. Add the steepest loss of Americans’ purchasing power in more than 40 years into the mix, and the task can seem next to impossible.

Prices have climbed on almost every consumer staple, rising 8.3% in August from a year ago — among levels not seen since late 1981. Everyday Americans thus have to make sacrifices with their money to make ends meet. Almost 3 in 5 (58%) said in a February Bankrate poll they had to cut back on spending because household items have gotten so expensive. Another 29% said they’ve had to dip into their savings, while 23% have had to take on credit card debt.

Skyrocketing costs can cause a major hit to one’s financial security. More than half (58%) of adults in a June Bankrate poll said they were concerned about the amount they have in emergency savings, up from 48% in 2021 and 44% in 2020. But some Americans are in a better position to handle inflation than others. Roughly, 4 in 10 (or 44%) have enough savings to cover an unplanned expense of $1,000, a vital fund in the face of higher prices, according to a Bankrate survey.

“Inflation raises prices and lowers purchasing power,” says Gabe Krajicek, CEO of Kasasa, an online financial services company. “Each one is being stretched further to cover daily needs, so there is less left over to contribute to savings.”

Making matters worse, the hunt for the best place to park your cash is a challenging one, with the average savings yield a modest 0.13%, according to Bankrate data.

Policymakers are already on a quest to cool inflation, especially at the Federal Reserve, where officials have been lifting the price of borrowing money to cool price pressures at the fastest pace in 40 years. But it comes with a price, slowing down the labor market and putting the U.S. economy at risk of a recession. Periods of high inflation also make saving for those rainy days harder, though even more so one of the most important financial steps a consumer can take.

 

“Having liquid funds available to you is always a good idea just because there’s going to be that emergency that arises,” says Kia McCallister-Young, director of America Saves, a nonprofit working in conjunction with the Consumer Federation of America. “It’s not an ‘if’ it’s going to rise — it’s a ‘when’ it’s going to rise.”

To help, Bankrate is here to walk you through crucial tips to both grow and preserve your emergency fund in the face of 40-year-high inflation, including offering insight on who might want to take careful consideration the most.

Key statistics

Latest annual inflation rate: 8.3% (August)

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