Inflation is up. Here's what savers should do now.

The most recent report shows that the inflation rate for December 2023 was 3.4% year-over-year – a slight uptick from November when it was at 3.1%. While this uptick might be disappointing considering that the Federal Reserve has been working to get inflation down to a target goal of 2%, December's 3.4% rate is still down significantly from the height of this inflationary period in June 2022, when the inflation rate was 9.1%.

And, this inflation news could have a big impact on savers. Here's what you should do if you want to save your money efficiently and earn the most interest possible. 

If you don't have a high-yield savings account, compare your options here. 

Inflation is up. Here's what savers should do now.

While the inflation rate doesn't impact savers directly, it could impact the decision the Federal Reserve makes later this month regarding the federal funds rate. That, in turn, could impact the rates that savers get from banks for high-yield savings accounts, certificates of deposit (CDs) and other savings products.

Here's what savers should do in reaction to today's inflation report.

Keep money in savings

With inflation ticking up rather than trending downward, the Fed may keep interest rates paused at the January meeting. This also aligns with the plan the Fed has followed during this inflationary period. 

Nick Covyeau, a financial advisor and founder of Swell Financial, describes it as a policy of "higher for longer."

"Everyone was getting more comfortable with a high interest rate environment," he says.

If the federal funds rate remains high, it's likely that the rates banks offer on savings products will also remain high. This is great news for savers, who can currently get rates as high as 5.25% on high-yield savings accounts.

"Today's inflation number confirms that short-term rates will likely continue to offer savers a reasonable yield on their short-term cash," says Erik Nero, a certified financial planner with First Step Wealth Planning.

John Jones, an investment advisor representative with Heritage Financial, agrees.

"For savers in particular, if interest rates hold to address the sentiment towards current inflation, this will continue to let those with high-yielding accounts to benefit from these higher yields," Jones says.

Essentially, if you are a saver, you may want to keep your money in savings. And, if you aren't currently saving with a high-yield savings account, now could be a good time to open one to take advantage of high rates.

Find a high-yield savings account to earn hefty interest now. 

CDs are also an option

While they don't offer the same liquidity as a high-yield savings account, opening a CD is also a solid option for savers right now. With a CD, you can guarantee you'll get the current interest rate for the entire term of your CD — generally between one month and 10 years. The downside is that you can't access your money during the CD term — not without facing hefty early withdrawal fees.

While using CDs to lock in rates could be a good strategy, Nero doesn't recommend using long-term CDs, as you can't predict where rates could go in the future.

"Attempting to lock in rates at the high is a fool's errand," he says. "Keep short-term cash in high-yield savings and CDs no longer than 12 months."

If you do want to put money in long-term CDs, you may want to consider using the CD laddering strategy, which lets you benefit from today's high interest rates while also maintaining some liquidity over time.

The bottom line

Inflation went up slightly in December. The year-over-year rate increased to 3.4%, up from 3.1% in November. While this might mean your groceries and other purchases are slightly more expensive, it could also result in more opportunities to earn high interest on your savings. The inflation uptick increases the likelihood that interest rates will remain high for consumer savings products, including high-yield savings accounts and CDs. If you already have a high-yield savings account, it makes sense to keep your money there — and potentially deposit more if you have funds currently sitting in a checking account. If you aren't currently using a high-yield savings account, now could be the time to open one.