Do Your Savings Have a Value Loss Right Now? 5 Ways to Avoid It and How It Might Happen

In addition to generating interest, savings accounts offer millions of Americans a convenient and secure way to access their funds, making them a suitable choice for short-term savings or emergency funds.

However, the interest accrued in a savings account is often meager, and with the recent high inflation rates of the past two years, the diminishing value of your savings may come as a surprise.

Humphrey Yang, a well-known “fin-fluencer” with 1.1 million YouTube subscribers and 3.3 million TikTok followers, emphasizes, “Cash is losing its value every single day.” Just like consumer prices, your savings are directly affected by fluctuations in inflation. When inflation rises, the cost of most goods and services increases, causing your savings to lose value, even if the amount remains unchanged. The paltry interest rates offered by banks create a disparity between inflation and interest rates, eroding the purchasing power of savers.

In the face of persistent high inflation, there are ways to safeguard your wealth from devaluation. However, some options come with higher risks than others. Here are five alternatives to traditional savings accounts, particularly when inflation is soaring:

1. Seek a High-Yield Savings Account

Whether you’re saving for a new home down payment, a child’s education, a medical emergency, or retirement, you may hesitate to expose your savings to the stock market or other speculative investments. Many individuals find it more convenient and secure to keep their money in savings accounts, even if it means losing value over time.

Transferring your funds to a high-yield savings account or an online bank that offers better interest rates than traditional banks can help your savings grow faster, thanks to their typically higher annual percentage yields (APYs).

2. Invest in the Stock Market

High-yield savings accounts may help maintain the value of your money, but unless the government and banks introduce inflation-protected savings accounts, you may need to diversify your investments to combat inflation. While investments in stocks and bonds entail higher risks, they also offer higher rewards.

Historically, stocks and bonds have had the potential to outpace inflation over the long term. According to MoneyWise, the S&P 500 has averaged a dividend-reinvested annual return after inflation of 6.2% since 1960. If you choose this route, it’s essential to create a diversified investment portfolio that aligns with your risk tolerance and financial objectives. Consulting with a financial advisor can be beneficial if you’re considering stock market investments.

3. Explore Real Estate Investment

Despite the substantial financial commitment and planning required, real estate investment can be a lucrative way to accumulate wealth and generate passive income over time. Real estate, as a prominent asset class, offers property owners consistent cash flow from tenant rent payments and long-term asset appreciation.

Like stocks, real estate has historically outperformed inflation. The Case-Shiller U.S. National Home Price Index, which tracks average single-family home prices in the U.S., has risen almost every year since 2012 and has seen an 8.6% increase over the last five years, according to MoneyWise. It surged by 18.6% between September 2020 and September 2021 alone.

4. Invest in Commodities

Commodities, which primarily include natural resources like agricultural products, oil, natural gas, and precious and industrial metals, tend to maintain or appreciate in value over time. They can serve as a hedge against inflation, as their value typically rises when inflation accelerates.

Furthermore, commodities function as portfolio diversifiers. Their value is influenced by supply and demand, so increased demand from buyers often leads to higher prices and profits for investors.

5. Explore the Collectibles Market

For those interested in alternative investments, the collectibles market is worth considering. While relying on the monetary values of collectible items to significantly surpass their original purchase price carries risks, it can also be a potentially lucrative venture.

According to Harvard Business School’s Business Insights, investing in collectibles can be challenging due to high acquisition costs, the absence of dividends or other income until items are sold, and the risk of asset deterioration if not properly stored or cared for. Expertise is a crucial skill for successful collectibles investing.

Almost anything can become collectible if there is demand and someone is willing to pay for it. Popular collectibles include rare wines, vintage cars, fine art, mint-condition toys, stamps, coins, and baseball cards.

Please note that all investments carry inherent risks, and it’s essential to conduct thorough research and consider your financial goals and risk tolerance before making investment decisions.