Is Money In Your Savings Currently Losing Value? How It Could Be and 5 Ways To Prevent It

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Besides earning interest, savings accounts provide millions of Americans easy access to their money, which is kept secure and insured. They are a good liquid option for short-term savings or emergency funds.

However, the interest that you earn putting your money in a savings account is modest at best, and with inflation being so high over the past two years, you might be surprised to learn how much value your savings have lost.

“Cash is losing its value every single day,” says Humphrey Yang, a popular social media “fin-fluencer” who has 1.1 million YouTube subscribers and 3.3 million TikTok followers.    

Like consumer prices, your savings are directly impacted by changes in inflation. As the cost for most goods and services spike when inflation increases, your savings lose value, even if the amount you have stays unchanged. Puny average payouts from banks are causing a mismatch between inflation and interest rates and are causing savers to sacrifice their spending power.

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With high inflation still a significant threat to your hard-fought savings, there are ways to prevent your wealth from losing value. But some are riskier than others. Here are 5 alternatives to traditional savings accounts that you should consider, especially when inflation is high.

1. Find a Higher-Yield Savings Account

Whether you are saving for — a down payment on a new home, a child’s education, a medical emergency or retirement — you might be reluctant to put your savings at risk in the stock market or other speculative investments. Indeed, more people find it easier and safer to keep their money in savings accounts, even if they are losing value.  

Moving your money to a high-yield savings account or an online bank that offers better interest rates compared to traditional banks will give you more bang for your buck(s) as these accounts typically offer higher annual percentage yields (APYs), helping your savings grow faster.

2. Play the Stock Market

High-yield savings accounts might help the value of your money, but unless the government and banks start offering inflation protected savings accounts, you’ll most likely going to have to look beyond these and diversify into investments, which have higher risks but also higher rewards.

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Stocks and bonds historically have the potential to outpace inflation over the long term and, according to MoneyWise, the S&P has averaged a dividend-reinvested annual return after inflation of 6.2% since 1960. If you choose this option, it’s important to have a diversified investment portfolio that aligns with your risk tolerance and financial goals. Consulting with a financial advisor might be the best thing to do if you’re considering investing in stocks.  

3. Look Into Real Estate

Despite the significant financial and planning commitment, investing in real estate can be a lucrative way to build wealth and generate passive income over time. Real estate is the most common and the biggest asset class because property owners receive quick cash flow from tenants paying rent and long-term asset value from capital appreciation.

Like stocks, real estate also outperforms inflation. The Case-Shiller U.S. National Home Price Index, the benchmark of average single-family home prices in the U.S., has increased “almost every year since 2012 and is up 8.6% over the last five years,” per MoneyWise. It rose by 18.6% alone between September 2020 and September 2021.

4. Invest in Commodities

Like real estate, commodities — mostly natural resources, such as agricultural products, oil, natural gas, and precious and industrial metals — tend to hold their value or appreciate over time and can act as a safeguard against inflation, because their value usually rises when inflation accelerates.

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Additionally, commodities work at portfolio diversifiers. And because their value is influenced by supply and demand, the higher attraction or demand from buyers for commodities results in higher prices and profit for the investor.

5. Explore the Collectibles Market

If you want to take a left turn and look at alternative investing, the collectibles market is a good place to start. According to the Harvard Business School’s Business Insights, relying on monetary values of collectible products to increase greatly over their original sale price is a risky proposition, but a potentially lucrative one.

“Due to the high costs of acquisition, a lack of dividends or other income until they’re sold, and potential destruction of the assets if not stored or cared for properly. The key skill required in collectibles investment is experience; you have to be a true expert to expect any return on your investment,” claims Harvard Business School Online.

Anything can be considered collectible if there is a demand and someone wants to pay money for it. Some of the most popular collectibles investors deal in rarewines, vintage cars, fine art, mint-condition toys, stamps, coins and baseball cards.

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