Can a high-yield savings account offset inflation?

Life is made up of memorable moments like graduations, weddings, travel adventures or buying your first home. To enjoy these special events, you often need to plan ahead and save. When deciding how much to save, you may also need to account for interest rates and inflation. 

Consider a high-yield savings account or CD.

High-yield savings accounts (HYSAs) and certificates of deposit (CDs) are attractive because they may earn higher-than-average interest rates that typically offset inflation. 

What is a high-yield savings account? Compared to a traditional savings account, a high-yield savings account could earn you a greater return on the money you’ve deposited. CNBC reported that in 2023, many of these accounts offered interest rates of more than 4%. But not all high-yield savings account benefits are the same. Different banks will offer different rates and fees. 

CDs offer another option for saving. The U.S. Securities and Exchange Commission describes a CD as an account that “holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years, and in exchange, the issuing bank pays interest.” 

When reviewing high-yield savings account and CD information, you’ll find the interest rate listed as annual percentage yield, or APY. The higher the APY, the higher your earnings. Keep in mind, APYs are variable on savings accounts but fixed on a certificate of deposit. That means the rate could go up or down after you open the high-yield savings account but remain set on a CD.

Choose how you save.

You’ll want to shop around to find a savings account. You may want to look beyond traditional banks to online banks if you’re in search of an account with a more competitive rate and minimal fees. Remember, it’s important to open an account at an FDIC-insured bank. 

The Federal Deposit Insurance Corporation (FDIC) automatically provides you with deposit insurance when you open an account at an FDIC-insured bank. This insurance protects deposited money against bank failures. According to the FDIC, the insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. 

Put inflation-fighting tips into practice.

You can take steps to offset inflation by following these tips:

1. Build the largest nest egg possible. Planning for inflation during your working years will give you more flexibility to cope with rising prices as you age. 
2. Increase deposits into your savings accounts. Establish automatic, recurring transfers from your paycheck, quarterly bonus or checking account.
3. Adjust the amount you’re saving. Review the inflation rate annually — or more often if inflation is rising quickly. Then, try to increase the amount you’re saving by that same percentage.
4. Elevate your earnings. If your salary goes up due to a new position or an annual increase, you can boost the amount you’re saving. You may also consider requesting a raise if the timing feels right. Payscale surveyed more than 160,000 workers and found that only 37% ever asked for a raise.
5. Review your investments. The inflation rate tells you how much your investments in stocks, bonds and funds need to earn for their value to remain steady over time. The return on investments will vary by investment type and be influenced by an array of factors. 

Keep your eye on the inflation rate, maximize your savings and review your investments with a financial advisor to fight the effects of inflation. A little planning can help you stay on track to reach your goals and continue to enjoy life’s most memorable moments.

Interested in boosting your savings?

Bread Savings™ offers CDs and high-yield savings accounts with competitive rates to help you save for your goals.