Inflation grew in July. Here's how that could affect your savings
So much for cooling inflation. After a year of falling prices, inflation rose by 3.2% in July, the Labor Department announced this week. The increase was the first since June 2022, partially based on higher food and housing costs. And while many experts think the long-term forecast is still positive, the report showed that Americans aren't in the clear quite yet.
High inflation and the elevated interest rates designed to combat it have had largely negative consequences for borrowers, as the cost of borrowing money has increased significantly. This is particularly true for homebuyers and current owners looking to refinance. It has, however, been beneficial for those with savings vehicles, like high-yield savings and certificates of deposit (CD) accounts.
So if inflation has increased once again, what can these depositors expect for their savings?
You can easily see how much more money you could be earning by opening a CD here now.
How July's inflation increase could affect your savings
Inflation doesn't necessarily have a direct influence on your savings. But higher interest rates can. And right now, interest rates are at a 22-year high, with no one knowing for sure if they won't go higher, especially following the July inflation report. It's possible that rates could increase once again — or they may stay flat. Most experts don't expect an imminent drop, however, making now an opportune time to open a CD or high-yield account.
With either account, savers can secure an interest rate exponentially higher than the 0.42% most are getting with a regular savings account. To compare, rates on high-yield savings accounts are around 4.15% to 5.15%. It's possible to get a slightly higher rate with a CD, particularly if you're comfortable opening a short-term one (12 months or less).
There are some things to be aware of when opening either in today's climate, however. For example, high-yield savings account interest rates are variable, meaning that they will rise when the Fed bumps rates up, but they'll fall when rates drop. CDs, on the other hand, have a locked-in interest rate regardless of the larger rate environment. So, if you open a 12-month CD with a rate of 5% now — and rates drop to 3% by the end of 2023 — you'll still earn interest at that higher rate until the CD term expires.
That said, high-yield savings accounts operate like regular savings accounts, and the flexibility and ease of use will remain the same. With a CD, you'll need to lock away your money for the full, agreed-upon term; otherwise you'll risk being penalized the interest you earned while it was in the bank.
Regardless of your personal preference, now is a great time to open one or both types of accounts. With inflation still looming in the background and interest rates elevated, you're losing money by keeping your funds in a regular account.
Check your high-yield savings account options here now and start earning more interest!
How much money can you make with a CD and high-yield savings account?
Still not sure if a CD or high-yield savings account is for you? Let's first look at how much you could be making with a CD with a $5,000 deposit:
- After a 6-month term at 4.5%: $5,111.26
- After a 1-year term at 4.5%: $5,225.00
- After a 5-year term at 4.5%: $6,230.91
And here's how much you could make by depositing $5,000 into savings accounts with various ranges:
- After one year with a regular account at 0.42%: $5,021.00
- After one year with a high-yield account at 4.50%: $5,225.00
- After one year with a high-yield account at 5.00%: $5,250.00
The bottom line
Inflation has left millions of Americans paying more for less and it has, in some parts of the country, significantly impacted the real estate market. But it also has some major advantages for savers. Higher interest rates mean higher returns on your money — but you'll need to switch accounts to take advantage. Get started here today!
