Save, save, save! It’s a message you’ll hear over and over again from financial educators, professors, and financial practitioners. But many fail to mention that if your savings account isn’t earning enough interest to keep up with inflation, you may actually be losing money despite your efforts.
That’s because the cost of everything from shopping to rent and clothing goes up over time. So even if you have the same amount in your savings as you did this time last year, your money won’t go far.
Does that mean you should stop saving money altogether? Absolutely not. But it means that the interest rate you earn on your balance needs to be higher than the rate of inflation. Here’s how you can make sure that happens.
Inflation is a measure of how much prices rise over time, including the cost of basic necessities like rent, utilities, groceries, and gas. As the prices of goods and services rise, each dollar you save buys less than before.
For example, in the winter of 2024-25, $911 was enough for the average family to pay their heating bills. But this winter, the average family is expected to need $995. That’s an increase of 9.2%.
What does this mean for your savings? Even if your savings earn interest, the real value of your money effectively decreases if the interest rate is not above the rate of inflation. As a result, you will have a hard time paying your basic expenses.
Read more: Does the president control inflation?
At the beginning of 2026, the inflation rate is around 2.7%. So if you want your savings to outpace inflation, you’ll need to earn more than 2.7% to cover inflation rate fluctuations.
That’s why we recommend that you keep your money in a deposit account that earns at least 3% APY. This will help preserve the true value of your savings while keeping your money safe and accessible.
You can’t beat inflation if you put your savings in a big bank. According to the Federal Reserve, the national average interest rate on savings accounts is currently only 0.39%, for example.
However, many community banks, credit unions, and online banks offer rates higher than 3%. Here are a few types of accounts that are most likely to earn you 3% APY or more.
If your savings account needs an interest rate boost, shop around for a high-yield savings account. HYSAs work like other savings accounts, but earn higher interest rates.
These accounts are mainly offered by online banks, which can pay higher rates than traditional banks as they do not have the overheads involved in operating branch locations. Today, most high-income savings accounts pay around 3%-4% APY.
For money you don’t need access to for at least a few months, try putting it in a certificate of deposit (CD) account. With CDs, you get higher rates if you agree to leave your money on deposit for a set period of time. Like HYSAs, the best CD rates right now are around 3%-4% APY.
Note that if you withdraw money from your CD before the maturity date, you will have to pay an early withdrawal penalty. Therefore, it is important to choose a CD name that matches your storage timeline.
Read more: How does inflation affect savings and CD rates?
A money market account is a type of savings account that typically pays a higher interest rate than a regular savings account while allowing easy access to your money. Most MMAs include check writing or debit card access, although they may require a slightly higher balance than a regular savings account. Today, the best money market accounts pay 3% APY and more.
If you’re looking for non-bank accounts that earn 3% or more, consider investing in Treasury bills. With these funds, backed by the US government, you can choose to deposit your money anywhere from four weeks to a year. Currently, T-bills with terms of 8 weeks offer the highest rates available (3.64%).
Read more: How to protect your savings from inflation
