Interest on your basic savings account has stayed the same while the inflation rate has climbed to new heights.
According to the latest data from the U.S. Bureau of Labor Statistics, December’s inflation rate broke a 39-year record when it reached 7%. While economists don’t expect this rate to endure forever, it may be another year before inflation returns to normal.
In the meantime, basic savings accounts have stagnated, averaging around 0.06%. With basic interest lagging behind inflation, your emergency fund might be rapidly losing value. Here’s what you can do about it.
Bump up Your Savings Goal
Usually, you’ll want to save the equivalent of three to six months’ worth of living expenses in this fund. This gives you a reasonable cushion you can tap into anytime an unexpected expense blindsides your budget. You’ll feel secure knowing you have this fund should your car require repairs you can’t pay out of pocket.
As for today, you may want to save more than six months of living expenses in your fund to reflect the latest inflation hike.
Inflation has caused prices to rise on nearly everything — from consumer goods to services. You’ll want to increase your savings to reflect these changes.
Have a Plan B
An emergency fund isn’t infallible, especially during these tough financial times. If you’re hit with an unexpected expense before you can increase your savings, you can cover the difference with an online installment loan.
An online installment loan is a convenient, short-term product designed to fill in the gaps of your savings in an emergency. It’s a fixed loan that you can pay back over time.
Just how much time depends on your lender. Some online direct lenders give you multiple weeks, while others extend your term over months or even years.
Before you apply for your next installment loan online, make sure you research online direct lenders carefully. By comparing online installment loans direct lenders, you’ll get a good sense of how these products work. You’ll see how they vary in cost and terms, giving you a chance to find the best option for your finances.
Move Your Fund to a New Account
A basic savings account has no chance of matching inflation’s latest hikes. But it never had any chance. Even when inflation returns to its usual 2–3%, the average savings account earns a measly 0.06% interest.
To maximize your earning potential, you’ll have to move your emergency fund to an online high-yield savings account. Online accounts tend to offer more favorable interest, with some reaching a 0.60% Annual Percentage Yield (APY).
While this may not seem like much, things add up — especially if you top out your savings goal.
Just make sure the account in question doesn’t have any balance minimums or withdrawal limits. You don’t want to be penalized for accessing your own cash.
The investors at Bloomberg don’t recommend putting your emergency savings into bonds, mutual funds, or stocks for extra interest. While these accounts earn higher returns, they often tie up your money for months (if not years) at a time. If you break these guidelines, you could be subject to costly penalties.
As you adjust your budget to reflect inflation’s latest hike, don’t forget to tweak your savings too. Small changes to the way you save can help you in an emergency.
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