Whereas fears of inflation mount, rates of interest on certificates of deposit hit document lows

How to protect your savings from inflation

Until a year ago, an old-fashioned payment slip was a reliable way to get a decent return.

But a surge in savings, coupled with the Federal Reserve’s drive to keep its policy rate near zero, has put pressure on deposit rates across the board.

“The bad news is that CD yields are at record lows, the good news is they have finally stopped falling,” said Greg McBride, chief financial analyst at Bankrate.com.

According to Bankrate, annual CD interest rates are currently only 0.17% on average, and even high-yield CDs are below 1%, which means that savers tie up funds below the inflation rate.

The CDs that offer the highest returns usually have higher minimum deposit requirements and require longer terms. But these yields are no better either. Both three- and five-year CDs are currently around 1%.

Online banks like Marcus from Goldman Sachs and Ally Bank are better choices, said Ken Tumin, founder of DepositAccounts.com, although these banks are also steadily cutting their rates.

“It makes sense to keep some money in an online savings account, but you will still lose in the short term to inflation,” he said.

Stocks and mutual funds will beat inflation in the long run, though these asset classes require higher risk.

Still, many Americans are willing to make this trade. The amount of money in CDs has steadily decreased while the number of households that have invested in the market has increased in recent years.

“Even income-dependent investors have started to broaden their horizons,” said McBride. “With extremely low interest rates, savers opt for greener pastures.”

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