How to Protect Cash Savings During High Inflation

How To Protect Cash Savings During High Inflation

We’ve gotten a TON of questions recently from readers trying to protect cash savings during periods of high inflation.

Usually, having mad cash and not being sure how to spend it is a fun problem to solve. (Index funds + a nice seafood dinner at a non-chain restaurant is our default answer.) But right now, high inflation is sucking the pleasure out of Scrooge McDucking on a big pile of cash.

Now is a terrible time to be holding onto cash. Cash savings during times of high inflation are guaranteed to lose value. For example: if you had $1,000 saved a year ago, our 8.5% inflation rate means that money can only buy $915 worth of goods today. It sucks for everyone, but especially so for people who’ve been saving up for a long time to hit a life milestone.

We know how hard our readers work and sacrifice to put money away. And it’s so painful to watch it lose its value because of reasons outside your control. So if you’ve got money sitting idle in your checking account, listen up! We’ll do our best to help you take the sting out of shrinking cash savings during high inflation.

Start by evaluating your risk tolerance

People stockpile cash for wildly different reasons. Beware advice that doesn’t consider the context. One-size-fits-all is for accent scarves and Snuggies, not financial advice!

One-size-fits-all is for Snuggies, not financial advice.

To protect cash savings during high inflation, the most important step is determining your risk tolerance. You need to understand why you’re saving, and the consequences of potential loss.

Let’s talk examples.

If you’re saving cash to get away from an abusive partner, you have low risk tolerance. If you lost it or couldn’t access it when you needed it, your life would be in literal danger. Someone with low risk tolerance wants to maximize safety and accessibility. They don’t care much about costs or returns.

Now, let’s say you’re a recent grad living with your parents. You’re all totally happy with that arrangement—but you have long-term plans to eventually buy your own place. A person like this has high risk tolerance. Safety is much less important because their situation is a lot more flexible. Growth is their #1 priority.

A lot of cash savers will fall somewhere in the middle. The most helpful question I ask myself to determine risk is “what would happen if I lost this money today?” If the answer is something dire like homelessness or bankruptcy, don’t fuck around. Otherwise, I’d strongly consider taking the risk of investing that money.

Plan A: Eliminate your need for large cash savings during high inflation by spending it

The best way to protect cash savings during high inflation?

Spend it!

CAPITALISM WORKS. NO NOTES.

Oui, I’m being serious.

When inflation is higher than normal, it’s ideal to invest money rather than save it. Modest inflation is a feature of our economy, not a bug. It shoos the dragons off their hoards and encourages them to put their wealth back out into the economy. For a deep dive into that topic, see this article written by a singularly brilliant person I like to call “myself!”

It’s been fun being your feminist socialist personal finance ICONS, but we were bitten by a radioactive neoliberal, and must transform into Rich Uncle Pennybags But Girls now. The solution to all the economy’s problems is to buy more things. Byeeeeeee~!

Convert your cash into goods

A lot of our readers have told us they’re saving cash for a major purchase and/or life milestone. New (used) cars, first apartments and houses, weddings, home projects, itty bitty babies… all fantastic things to save for!

But inflation drives the cost of everything up. Tangible assets like vehicles and real estate maintain value better than cash savings during high inflation. So if you’re saving cash for a purchase, pull the trigger on it as soon as you can.

Cash savings during high inflation are a no-no.
Just buy more ATVs.
Trust us, we're financial geniuses.

This may mean compromising on your original goal. If you can’t afford the 2021 used car you wanted, could you swing the 2019? If you’re dreaming of a single family house but prices are too hot, could you settle for a modest condo as a stepping stone?

It could also mean getting creative. Let’s say you’ve got $2K saved toward a $20K goal of redoing your extremely 1950s kitchen. (Why would you, tho?) It may be better to convert that $2K into a new refrigerator now. The alternative is letting that money sit idly in the bank, awaiting a bleak future where fridges cost a couple hundred bucks more.

Many longer-term goals can be broken into smaller parts. Saving for a child? Buy some nursery furniture now! Planning a wedding? Book your vendors in advance! More advice on saving for goals like these…

Pay off debt

Inflation doesn’t have many pros, but it does make it theoretically easier to pay off debts. Wages theoretically rise to compensate. The amount you owe should be theoretically relatively less painful as time goes on.

… Was that enough “theoreticalies?” Obviously, there’s a lot of pain as wage gains tend to lag behind price gains.

There are two potential strategies to manage debt wisely during high inflation. Some would say it’s best to keep your debts, paying back only the minimums, relying on inflation to eventually make their sting less painful. And that might be a good tactic for some people and some situations.

But you know what benefits everyone in all situations? Having no monthly debt repayment bills a’tall! Using excess cash to pay off debts may not be the most (robot voice) mAtheMaTicaLLy oPtiMaL choice in the short-term. But being debt-free is an amazing long-term investment for your peace of mind and quality of life.

Piggy and I are millennials. Financial instability has stunted our generation, and that’s shaped our view of debt. We’re super, duper debt-averse. Debtphobic, even. There are many investments and purchases I wish I could change or take back—but I’ve never regretted paying off a debt.

Important side note: If any of your debts have a variable interest rate, BANISH THEM TO THE SHADOW REALM. They will keep up with inflation, and vampirically suck away at your budget until killed.

BRB sending your variable interest rate debt to the shadow realm.

Reevaluate your emergency fund

Another common concern among readers is what to do with emergency funds.

Emergency funds are a crucial buffer against the instabilities of our unjust world. I cannot overstate their importance. No matter how wealthy and stable I become, I will always have a plan for how to address unexpected expenses. Cash is a piece of that plan, even during times of high inflation.

That said, more isn’t always better when it comes to cash emergency funds.

Lots of people—especially Millennials, Gen Z, queer people, and women— have a tendency to over-save as a way to cope with financial anxiety. That’s understandable as fuck, and a somewhat benign problem in normal times.  But it is holding those groups back. And it’s especially harmful in the long term to keep unnecessarily large cash savings during high inflation.

Now is a great time to think critically about the size of your emergency fund. Given that unemployment is low, and jobs are pretty easy to come by, could you scale back from having six month’s savings to three months? Could you do what we suggest in this article, and reserve credit cards for true emergencies?

Ladies! Queers! Children! I love you so much. Please stop hoarding cash, you precious chucklefucks. You’re losing money doing it. There are better ways to make yourself safe. I need you financially stable and politically powerful, m’kay?

Plan B: If you MUST keep cash, optimize where you put it

Sometimes, there’s no avoiding having a large stash of cash.

If you’re actively shopping for a house, for example, your home down payment needs to stay—pun intended—as safe as houses. After all the hard work of home shopping in a dystopianly competitive market, the last thing you want is to miss out because your money is tangled up elsewhere.

Here are some of the most common, convenient places to put cash savings during high inflation. Keep in mind that these are my candid opinions. And I am an uncredentialed, recently jobless dumbfuck.

If you need it NOW, consider a high-yield savings account

High-yield savings accounts (sometimes called a HYSA or “hissah,” which I don’t like because it sounds like someone hissing at me and I’m very sensitive) are still superior to traditional savings or checking accounts.

But it’s not by much.

At time of writing, even the best high yield savings accounts are only offering about 0.6% interest rate. When you’re losing 8.5% to inflation, that’s a fucking joke.

You will lose money keeping cash in a high-yield savings account. But that’s a cost you’ll have to eat if you want your cash to be liquid and immediately accessible. And if any of those terms are unfamiliar, we gotchu:

If you need it in 1-2 years, consider bonds

Thank the fucking stars I don’t have to explain what bonds are, because Piggy already did so. Do you have any idea how many spoons it takes to make bonds pithy and exciting? Several more than I have!

But the tl;dr is that both corporate or government bonds are reliable and accessible, offering between a 2-3% interest rate. You’re still losing money, but less of it.

Although we’ve recommended CDs in the past, they aren’t wise right now. Your money will be locked in a low-return CD for the next two years. So if inflation does start to cool and rates rise, you can’t access your cash, and you’re missing out on better opportunities.

Ya hear me? No CDs until further notice!

WE DECREE: No variable rates on debt! No fixed rates on CDs! Low cash savings during high inflation!

If you need it in 2+ years, consider investing it

In the last year, inflation was over 8%. And savvy readers will note I haven’t suggested a single option that comes close to wiping that loss clean.

Which is why I’ll remind you that the rate of return on the S&P 500 last year was over 26%. And home prices weren’t far behind at 19%.

To put that into greater context, let’s say Piggy and I both had $1,000 to spend at the beginning of last year. She put hers in a high-yield savings account, and I put mine into index funds on the stock market.

Twelve months later, she would be able to buy $920 worth of goods. But I could buy $1,268.

This is why inflation fucks over timid investors and cash-hoarders.

Obviously, rates of return are never guaranteed. The market’s seen wild fluctuations during the pandemic. You will lose money temporarily, and you may even lose some of it permanently.

I know this from personal experience. When I had $50,000 saved toward a home downpayment, I wasn’t in a hurry to shop. So I invested the downpayment in the market. Unexpectedly, I found the perfect home much sooner than expected. When I went to take my money back out, I’d  lost $3,000 of it due to some kind of flimflammery in the Chinese markets. I had to sheepishly ask my incredibly kind in-laws for a short-term loan to get us from closing to our next paychecks.

But it’s a choice I’m still glad I made. I knew my situation; I knew I had several layers of safety nets. And I was just as likely to have made $3K as lost it. So even thought it burned me once, Present Me would make the same choice as Past Me. And it’s a choice I strongly encourage you to consider, if you don’t need that money right away and have time to recoup.

Inflation is ALWAYS working against us

We’re alive in truly sadistic chaotic Ragnaröky extraordinary times. So much about the future is unknown.

But if one thing is clear, it’s that inflation is higher than usual, and that’ll take months or years to change. Until it does, you need to have a really valid, strategic reason for keeping large amounts of cash on-hand. High inflation does quite enough damage on its own. Keeping cash savings during high inflation only multiplies the damage.

If pushed to be optimistic, I’d say I see this moment will compel many more people into investing. Unfortunately, I’m not the only person who sees that opportunity. Fly-by-night cryptocurrencies and NFTs are out there snatching up huge sums, mostly from young people and people of color who are rightly disillusioned by traditional investing. Our feelings about that are well-documented. (In summary: 😢)

We do think traditional investing has much better potential to generate wealth and stability for people who need it, while redistributing power away from those who have too much. Especially if used in conduction with guillotines ethical investing strategies.

If you have friends who don’t know how to do this stuff, please don’t leave them in the cold darkness to be eaten by wild dogecoins! Browse the articles on our recent investing for beginners masterpost and share them with someone who needs them. And please consider supporting our work on Patreon! Being your guides is a task we love, and take very seriously, except when we don’t because we have to tell jokes to keep you awake.

People stockpile cash for wildly different reasons. So what’s yours? Why do you have cash right now? Are you saving up for something big? Have you found a better inflation-proof strategy for storing short-term cash? Please share in the comments below!

23 thoughts to “How To Protect Cash Savings During High Inflation”

  1. Is there a reason you left out I-bonds in the section on 1-2 year savings? Admittedly, they’re limited to $10k per person per year, and are illiquid for 1 full year, but they’re inflation protected and can be a great solution for where to hold moderate amounts of cash you definitely won’t need to tap within 12 months. Of course, they can also be laddered over a few years to create an inflation-protected emergency or savings fund.

    1. This was exactly what I was thinking. The current rate on Series I bonds is 9.62% annualized. Yes, they adjust every six months, they’re locked for the first year, and between years 1-5 you lose 3 months’ interest as a penalty for withdrawal, but they’re guaranteed to never lose (real) value. Also, if you use them to pay for educational expenses, the interest is tax-free.

      I’m planning to put a chunk of my emergency fund (I have 6 months saved) into I bonds this month because it’s a guaranteed 9.62% for Treasury-backed securities, and I don’t need the full 6 months to feel safe right now. That’s as secure as a bank account (FDIC insured = government backed, too), and even if inflation shrivels to 3% or something in the fall, that’s still a better (almost no-risk) return than I can get anywhere else. Even if the website does look like the Treasury hasn’t updated it since 2002.

    2. Yes, I left them off for exactly for the reasons you mentioned! If it’s not liquid or liquid-ish, I don’t think it’s a good fit for emergency funds, which seems to be the #1 reason our readers keep cash on hand. (For good reason!)

      A smaller percentage are saving cash toward a major purchase. But I also don’t love them for that purpose, for the same reason. I’ve known a lot of people who were saving for a car “in the next few years,” only to have their transmission on their current vehicle fail, and they need to start shopping much sooner than they’d planned. Basically, they’re a great option for people in some situations! But I think a lot of our readers might be inclined to underestimate the importance of liquidity. Or to hoard too much cash, period.

  2. I have always tried to keep as much of my money as possible in stocks and bonds. (And I’m a gay disabled millennial woman! But I had the benefit of a white, male, lower-middle-class-but-upwardly-mobile parent who taught me lots about finance.) I have two different sets of money: one is long-term, the other short-er-ish-term. For the long-term investments, stock market dives are when I invest in stock. I wait a few years for everything to rise, then move some of that back into bonds to await the next fall, when everyone will want bonds and mine will be worth more compared to the stocks everyone is trying to get rid of. I don’t move my money often–once a year at most–because that’s how you lose money on the market.

    The short-term money I keep maybe 60% in bonds at all times. It’s safe and there if I need it, and never losing too much value regardless of what happens to the market. This way, too, I can both “play” the market with some money I don’t mind risking, and also keep money safe albeit with less growth. So far this has actually enabled me to (accidentally) make money off things like the pandemic and the Ukrainian crisis. Which makes me sound like a tool when I put it like that! But somebody is always making money off of somebody else’s fear and uncertainty, and I’d rather that it’s not the upper-class white men who fed our fear and caused the uncertainty in the first place.

    1. Hell yeah!! Whether it’s French Onion or the stock market, I stan a queer lady buying a dip. I try to think of them as “sales.” 60% is pretty high for bonds, but I looooove your strategy, and it sounds like it’s working out great for you.

  3. Thanks for this article, it really helped me re-frame and reconsider some of my decision making processes around savings. My husband and I currently have a lot of money in a HYSA that we opened before the pandemic to start saving for a house. Then the pandemic hit and we did not buy a house because of uncertainty. Then we did not buy a house because the market got insane. Now we’re cautiously dipping our toes into the home buying market again, but I’ve been cautious/hesitant because the market still feels pretty insane and we probably cannot get exactly what we want, but I now realize the longer I sit on this cash the more I lose, so it may be worth it not to hold out for the “perfect dream home.” Good thing to think about as we prepare for more showings this weekend — it’s crazy out there!

    1. So glad it’s helpful! I have a ton of friends in your situation. Watching them trying to buy their first home in this market has been like watching a terrified 15 year old with a learner’s permit trying to merge onto the Autobahn. I’ve pretty much advised them to do whatever’s necessary to get on. Old advice was that you shouldn’t buy a home if you couldn’t see yourself living in it for at least five years. But I’ve seen many homes resold after 1, 2, and 3 years—not flipped or majorly improved upon—turning very healthy profits. Good luck!!

  4. This is timely! It’s a puzzle I’ve been considering for many months now. Starting next month I’m taking a year off and doing some travel, and have been saving for that for a while. Some of my money is in cash, some is in I-bonds, and some is in the stock market in a taxable account (withering away quickly).

    My plan is:
    – spend cash first (I have enough to cover July-October)
    – if the stock market recovers somewhat, cash out account (will get me through Nov-May)
    – if the stock market doesn’t recover/keeps tanking, delay cashing it out. Instead cash my I-bond that comes up in November (saying goodbye to 3 months of interest), cash out probably half the stock fund (combined, those will get me through Nov-March), and when it’s time for a refill, cash out the rest of the stock fund, recovered or no (will cover April-June).

    It’s also an option to decide to look for work sooner than the one-year mark. OR if life costs less than I expect, to also take summer of 23 off as well!

    Separate from the travel money, I have 5 months of living expenses set aside to use while I job hunt. And I have access to some other money that’s in a 457 retirement account and not susceptible to the 10% early withdrawal penalty, should something truly dire and expensive happen.

    I will then have to spend some serious time and energy replenishing my savings, but it’s worth it!

  5. We recently purchased our first house outright (below 40k—and it’s not garbage house! It’s a freak underpriced “Are you kidding me?!” house). My husband has several medical concerns, so we try to keep a years’ worth of expenses on hand in case he has an ER visit or hospital stay. I know a year’s worth of money is a A LOT to just have sitting right now, but we’ve built up from nothing AND are debt free despite the medical bills. He also has a 401k we could tap in a worst case scenario.

    TL;DR I’m terrified of having less than a year in savings , especially now that we’ve a house, but I’m also terrified of losing it to the inflation goblins. Please advise!

    1. I also have a ton of medical issues, so I totally get that fear! And kudos on the house, that’s fantastic! If it were me, I’d keep the money in investments (I like to use Vanguard). It’s not like a CD where you have a penalty for withdrawing early, and it will usually make better returns, even over the course of a single year, than a CD or HYSA will.

      Put money in both stocks and bonds at a 60-40 ratio. (I recommend index funds, which are insulated from the volitility of individual stocks and bonds.) Once every 9-24 months (less often is better), switch between 60% stocks/40% bonds and 40% stocks/60% bonds.

      This is the basic investing method my dad taught me when I got my divorce and ended up with a bit of funds from my ex. Nowadays I have added one strategy: when the market drops, I move about 80% into stocks in order to ride them back up. After things even out, at some point I go back to the 60-40. But that’s just a bit of extra work.

      Since I got Covid 2 years ago, became fully bedridden, and lost my job, I have needed to pull from my investments often for bills. Having almost all my money in investments has had a lot of plusses: (1) I can easily log in and transfer money to my bank when I need more funds for rent etc (takes only 24hrs to hit my account), (2) the money is constantly growing, unlike if it were in the bank, and (3) even though I can access it easily, it’s not physically in my bank account where I will see it, so it keeps my spending down.

      Those are just my little thoughts; Their Highnesses the High Priestess Piggy and the Empress Kitty probably have better ideas! Good luck, fellow bitch <3

      1. Good luck, to you, too! Thank you so much for your detailed, thoughtful, and experience-based response. Trite thought it may sound, I truly hope your health improves, and major credit to Past You for investing so wisely so that Present and Future You could be safe while you heal.

        1. Nothing makes my Grinch heart swell with joy like seeing our readers helping each other.

          ~With the caveat that I am a know-nothing internet person!~ I think Liz’s advice is really good. 60/40 is a super safe split, and using market dips to readjust and buy low is a great way to use volatility to your advantage. If you’re already debt free, a higher credit ceiling could supplement your emergency fund and help you find the courage to get out there and invest it.

  6. A whole article on protecting savings from inflation and zero mention of ibonds or TIPS, but a paragraph on high yield savings? I know you guys can do better — this smacks of timing the market.
    I piled cash into ibonds when they weren’t sexy, and I’ve never regretted it, especially now.

    1. Interest in I-Bonds is noted, and I’ll probably do a separate write up on them in the future.

      See my comment above for more about why I don’t suggest I-Bonds. But basically: liquidity, mon frere! I-Bonds (or TIPS) would be great choices for some people in some situations—mostly people who have a very specific kind of medium-term goal in mind + a high degree of stability/predictability in their finances. But I don’t think that describes the majority of our readers.

  7. Plan A: Eliminate your need for large cash savings during high inflation by spending it

    That’s precisely a psychological factor to inflation: buying stuff now because it will be more expensive later. Taken to the extreme, Weimar Republic was experiencing hyper inflation before the Nazis took power. People would take wheelbarrows of deutschemarks to the store in the morning to buy bread because it would be more expensive in the evening!

  8. You mention your joblessness (congrats!!) in passing, but would LOVE an update about your resignation, last day of work, and how it is livin’ the life of leisure. Your fans want to know!!

    1. We are planning a YouTube Live AMA on this subject later this month! Subscribe so you don’t miss it!

      SPOILER ALERT: UH IT’S FUCKING SWELL.

  9. I hoard cash because I want to travel abroad next year, move out of my state after that, as part of my strategy for the down payment on a house or condo at some unknown point in the future, and also because i’m a young millennial woman who craves the comfort & security of those sweet, sweet paper money stacks. That being said this article made me finally pull the trigger and move $5k from my HYSA into one of my brokerage accounts and buy up a bunch of expensive stocks I’ve been eyeing (buy the dip as the finance bros say). I could honestly probably afford to move even more or get bonds, but I’m still a chucklefuck working on becoming politically powerful and financially stable.

    1. Proud of you!! Don’t feel the need to push yourself to go headfirst off the high dive. You’ve taken a great first step, you will gain confidence as you go. CHUCKLEFUCKS UNITE!

      1. This morning I moved three months worth of my emergency fund from savings into an index fund with Vanguard. (I still have six months left in emergency cash…habits are hard to break, yo.)

        And THEN, this afternoon, I read this post. Now I feel like a prescient, financial hedge witch. I am picturing myself dancing in a waterfall of glitter as we speak. Thanks, Bitches!

  10. Spending it has been our method lately. We had a ton of cash saved up over the last 2 years since we weren’t traveling or doing things with the pandemic on. We thought we were going to use it for a kitchen remodel…but with prices what they are, and contractors so overbooked, I got tired of begging people to take tens of thousands of my dollars and we’re putting it on indefinite hold. We took a very nice vacation lately, and have been treating our friends to more activities too.

    All that is to say I need to invest it since I have no plans for it in the next 1-2 years. Gonna have to research these i-bonds commenters are recommending….

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