It’s a tough time for savers. The interest rate on consumer prices just hit a 40-year high by climbing to 8.5% earlier this year. Unfortunately, the interest rates on basic savings accounts haven’t matched inflation’s rapid pace.
At just 0.06%, it has all but flatlined.
With your emergency fund earning practically nothing in interest, your savings are losing value over time. Is there anything you can do to insulate this account from inflation’s rising prices?
Consider Saving More in Your Emergency Fund
Long before the pandemic came along, financial advisors recommended socking away three to six months of living expenses in your emergency fund. At the time, it was a generous cushion in case you lost your job or faced unexpected expenses.
Now in the third year of the pandemic, things are a lot different. Between supply chain issues and record-breaking inflation, life is more expensive. Housing costs, utilities, groceries, and household goods all cost more than they did before the lockdown.
If an unexpected car repair or medical expense costs more, it makes sense to boost your savings goal to reflect these prices. Consider saving nine to 12 months of living expenses to be safe.
Don’t Panic if Your Emergency Fund Falls Short
With each unexpected expense taking up more of your savings, you might notice you scrape the bottom of the barrel faster than you expect. If you’re stuck paying for another unexpected expense before you can replenish these savings, you can research cash advances online.
An online cash advance is one of the many short term personal loans available on the web. You can compare and apply for these loans without ever stepping foot in a bank. Instead, it happens over your computer, tablet, or phone screen.
Like other short term personal loans, a cash advance gives you a small lump of cash that helps you cover an unexpected expense. It’s a fixed loan, so you’ll have to pay it back, usually over installments spread out over multiple weeks or months.
Online cash advances can vary in size and cost, applying APRs of anywhere from 5% to 500%. With this range, it’s important you compare cash advance lenders to get a sense for how much these products cost.
Hunt Down the Best Interest Rates on Savings
Just as you want to comparison shop cash advance lenders, you’ll want to do the same for savings accounts. While shopping around, keep an eye on the Annual Percentage Yield (APY). The APY is the amount of money you earn on your savings in one year through compounding interest.
Right now, basic accounts offer a measly 0.06% APY. At this rate, the basic account isn’t really working for you or your money. If you have $1,000 sitting in your emergency fund, you will earn $0.60 in interest over a year.
Luckily, other savings accounts promise greater returns. Sometimes, they come with balance minimums or withdrawal limits, which you should consider carefully. Your emergency fund must be accessible at a moment’s notice in an emergency, so you don’t want to lock in your money accidentally.
The Takeaway:
Economists promise inflation’s runaway ride will come to an end soon, but it won’t return to pre-pandemic levels for another year at least. That means you can expect another year or so of increased prices draining your emergency fund faster. Follow these tips to protect your savings.
Disclaimer: This content does not necessarily represent the views of IWB.