September 12, 2022
Inflation isn’t just eating away at your purchasing power—it’s also ravaging your savings account.
If you’re like many people, the interest you’re earning on your money is being completely eroded by inflation. That’s because the annual rate of inflation has been outpacing the interest rates on savings accounts for years.
Let’s look at some numbers…
Let’s say you have $10,000 in a savings account that pays 1% interest. After one year, you would have earned $100 in interest, which sounds like a decent return.
But if inflation is running at 2%, then the purchasing power of your money has declined by 2% over the same period. In other words, the $10,100 you have in your account can buy less than what $10,000 could buy a year ago.
As a result, your real return on investment—or the return after inflation is taken into account—is actually negative 1%.
Now, let’s bring that to the real world—in 2022, the total inflation rate has been 8.5% thus far,¹ while the average interest rate for savings accounts is just .13%.²
That means for every $100 you have in a savings account, the purchasing power of that money declines by $8.50 while the value of your money only grows by $.13.
In other words, inflation is absolutely massacring your savings account.
So what can you do about it?
Simple—find assets that grow at a rate that outpaces inflation.
One option is to invest in assets with high compounding interest rates, such as certain types of bonds. Another strategy is to invest in options that have the potential to generate high returns, such as stocks or real estate.
You could also start a business that can scale quickly and generate a high return on investment.
Whatever strategy you choose, the key is to find an asset that will grow at a rate that can outpace inflation.
So don’t sit idly by and watch as inflation destroys your savings account—take action and find an investment that will help you keep up with the rising cost of living. Otherwise, you’ll end up losing ground financially.
This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a licensed and qualified financial professional, accountant, and/or tax expert to discuss your options.
¹ “Kevin O’Leary’s No. 1 money mistake to avoid during periods of high inflation,” Nicolas Vega, CNBC Make It, Apr 21 2022, https://www.cnbc.com/2022/04/21/kevin-olearys-no-1-money-mistake-to-avoid-during-high-inflation.html
² “What is the average interest rate for savings accounts?” Matthew Goldberg, Bankrate, Aug. 4, 2022, https://www.bankrate.com/banking/savings/average-savings-interest-rates/#:~:text=National%20average%20savings%20account%20interest,ll%20earn%20on%20your%20savings.