With inflation cooling, where should you put your savings?

The latest inflation numbers are in, and they're… somewhat better than they have been.

The Department of Labor's recent Consumer Price Index (CPI) Summary, released on Tuesday, reports that the CPI rose at an annual rate of 4% in May. While a move in the upward direction isn't necessarily great news, it's the smallest increase we've seen since March 2021, which could signal inflation has finally begun to cool.

Many economists already predict the Fed's next meeting on June 14th will result in a rate hike pause. After 10 straight hikes since March 2022, this would be welcome news to Americans who have been feeling the pinch as their purchasing power continued to dwindle. 

Many Americans have cut back on their savings as a result. That said, cooling inflation means they might be able to start putting more of their money toward savings again. But where are the best places to put it?

Check out today's savings rates to see how much you could be earning now.

With inflation cooling, where should you put your savings?

The following savings vehicles are smart places to put your savings no matter what the economy is doing. But with inflation cooling, they can be particularly valuable.

In a certificate of deposit (CD)

Certificates of deposit (CDs) are savings products that earn interest for a set term (typically anywhere from three months to five years). In exchange for keeping your money in the account for that term, you can earn a competitive interest rate that won't go down while you own the CD.

"CDs pay a fixed interest rate and can offer higher interest rates than other types of deposit accounts," says Greg Goff, CFP, founder and financial planner at Sound Wealth Management. 

The money you deposit in a CD is protected up to $250,000 per account per institution if held by an FDIC-insured bank or NCUA-insured credit union. And, unlike volatile investments such as stocks, you'll never lose any of your balance or accrued interest if future economic developments frighten the market.

"A CD is worth considering when interest rates and market risk are both high," Goff says. "If you can earn a safe return without exposing yourself to unnecessary market risk, you should consider investing."

With interest rates still high and a rate pause expected, now is the time to open a CD and lock in a good rate before rates fall.

Compare your CD options here to find the best account for you.

In a high-yield savings account

CDs are great if you can afford to keep your money tied up for the entirety of the term. But for savings you may need to access, a high-yield savings account is a better choice.

"For consumers that have an emergency fund or who are building an emergency fund, a high-yield savings account can be a good place to store that cash," says Kristen Beckstead, CFP, ChFC, vice president and financial planner at First Horizon Advisors. "Unlike CDs, high-yield savings accounts generally don't have a maturity date or early withdrawal penalties. This means you can access your money whenever you need it without incurring fees."

High-yield savings accounts offer some of the same benefits as CDs, including FDIC or NCUA protection and high interest rates. Unlike CDs, interest rates for high-yield accounts fluctuate based on the federal funds rate, but you'll never lose any of your principal or interest earned to date. So, whether you're building an emergency fund or saving for a particular expense, these accounts can help your money grow while still ensuring you can access them when needed.

"A high-yield savings account is a great tool for consumers who are saving for a short-term goal like a vacation or car purchase," Beckstead says. "You can usually start a high-yield savings account with a relatively small amount and add to it on a regular basis."

Start your search for a savings account by viewing today's top offers here.

The bottom line

While the latest inflation numbers are tentatively promising, core inflation currently stands at 5.3%, well above the Fed's target of 2%. And while the Fed may skip a rate hike in June, interest rates still remain high.

CDs and high-yield savings accounts are great ways to take advantage of these still-high rates. By acting now, you can make the most of today's rate environment and grow your savings faster, whatever the next inflation numbers are.