How To Make Sure Your Savings Account Doesn’t Lose Value in 2023

A young woman bank customer making a financial transaction with a bank teller over the counter in a retail bank
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The federal government backs savings accounts with FDIC insurance or, if you choose a credit union, NCUA insurance. But, while Depression-era bank failure isn’t a threat to your deposits anymore, today’s high inflation certainly can be.

“If your money is in a traditional savings or checking account, you are losing money because inflation is eroding the purchasing power of your savings,” said Paul Walker, author of “A Money Book Anyone Can Read.” “That $50 buys less gas today than last year; but, if your money is invested in the stock market, you lose money if you sell the stock or if you owe capital gains tax.”

So, how can people defend their cash when inflation is working so hard to steal as much of it as possible?

GOBankingRates asked the experts.

Also compare high-yield savings accounts to investing.

If You’re Not Earning at Least 3%, It’s Time To Trade Up

Until recently, one savings account was roughly the same as the next — the average national deposit rate was 0.06%. Even if you got 10 times more than average, your savings deposits earned just six-tenths of 1%.

That has all changed; and, if your bank hasn’t caught up with the times, it’s time to shop around.

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“With rising inflation rates, if you have your savings sitting in a no- or low-interest account, your money is depreciating in value over time,” said Jake Hill, CEO of personal finance site DebtHammer. “One method people might choose to ensure their savings keep up with inflation rates is to switch to a higher interest account. You’ll typically want something at or over 2% interest rates to ensure your money is keeping pace with rising costs.”

Currently, you’re settling for less even at 2%.

Savings accounts with rates in the mid-3s are easy to find, and the best of the bunch — UFB Direct, for example — are paying yields in the mid-fours.

Protect Your Deposits With Safe, Inflation-Busting Securities

The federal government does more than just insure deposits. It offers a class of Treasury securities designed to defend your funds from rising prices. They’re nearly as risk-free as a savings account, only with much higher rates of return.

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One Option Adjusts Your Principal To Account for Inflation

The first kind of inflation-proof home to consider for your savings increases your principal deposit when prices start to rise.

“Invest in Treasury Inflation-Protected Securities (TIPS),” said Riva Jeane May Caburog of Nadrich & Cohen law firm. “The goal here is to protect the value of your savings amidst any form of economic crisis. TIPS allows you to achieve this by adjusting your principal and ensuring the value of your finances is still the same despite the inflation. This will eliminate the chance of draining your savings while earning fixed interest twice each year based on the adjusted principal.”

Another Holds Your Principal Steady but Delivers Outsized Yields

The Treasury also offers an alternative to TIPS that protects your money differently. Series I savings bonds, commonly referred to as I bonds, don’t adjust your principal the way TIPS do. Instead, they let you lock in a high yield that’s designed to offset the effects of inflation.

Currently, you can secure a 6.89% interest rate — much higher than even the highest-yield savings account — that’s good for six months when the rate adjusts again. You can buy I bonds for as little as $25, and you earn interest semiannually.

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You collect more interest by holding for at least five years, and you can keep earning interest for up to 30 years. But you can also choose to cash out in as little as 12 months.

Explore Safe Alternative Debt Investments

Newer alternatives like Worthy and Stairs offer savers the chance to get more from their money by investing in secured debt notes. Companies borrow your money and back their loans with physical assets, which greatly reduces risk.

Worthy pays 5% fixed interest on investments of as little as $10. Your money is fully liquid: You can make withdrawals at any time. Interest compounds daily and there are no penalties or fees.

Similarly, Stairs by Groundfloor pays 4% to 6% depending on market conditions. Its notes are backed by real estate and it repays and reinvests every five days, so you’ll enjoy full liquidity here as well.

Hedge Your Bets by Juggling Currencies

Another way to protect your dollars is to branch out from dollars altogether.

“Buy money in different currencies and save them in different banks,” said Chris Thomson, CFA and contributing author at the business solutions site Management Library. “There are several currencies that are rarely affected by inflation, even if other countries’ economies are all over the place. Once the value goes high enough, you can sell these currencies and place them back in your savings account. This kind of currency trading is very profitable if you are an active trader and you follow the rise and fall of the different currencies in the market.”

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Currency trading is complex and can be risky, so read up before you take the plunge, and make sure your bank supports foreign exchange.

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