Personal Finance Mar 12, 2024 10:12 AM EDT

3 Proactive Steps to Weather the Inflation Storm

By April Fowell

This week marks the release of the U.S. inflation report, and the fresh data on inflation may have a significant effect on the economy based on its findings. After all, the Federal Reserve's choices about interest rates, which are presently halted at a 23-year high, are heavily influenced by inflation.

3 Proactive Steps to Weather the Inflation Storm

This week marks the release of the U.S. inflation report, and the fresh data on inflation may have a significant effect on the economy based on its findings.
(Photo : by TOM WILLIAMS/POOL/AFP via Getty Images)

The Federal Reserve will usually raise the federal funds rate in order to deter spending when prices rise too rapidly. This action usually raises borrowing costs and returns on savings. The Federal Reserve often lowers interest rates when prices aren't rising as quickly as they should. This lowers borrowing costs and increases returns on savings.

The forthcoming inflation report, in turn, may pave the way for monetary policy adjustments that might affect your financial security. However, what specifically should savers do to get ready for the next inflation report?

Open a CD

Late last year, the Fed put a stop to rate increases, and they are still on hold today. Nonetheless, the majority of analysts predict that the Fed will begin lowering rates in the middle of the year.

Financial institutions may begin to lower their certificate of deposit (CD) rates in anticipation of the Federal Reserve's next steps if the latest inflation numbers indicate a decreasing trend. Therefore, locking in today's high CD returns might be beneficial because you'll get the same rate for the duration of the CD, regardless of what happens to the wider rate environment during that period.

However, there is one thing to keep in mind. Generally, you commit to keeping your money in a CD until it matures when you start the account. Consequently, in case you want to retrieve your money before the CD period ends, you could have to pay an early withdrawal penalty. Therefore, in order to avoid those fines, it's crucial to make sure you can keep your money in the account undisturbed.

Yet, there are situations when having an early withdrawal penalty is advantageous. You can accomplish your savings objectives, for instance, if you consent to retain your money in the account for the duration of its term.

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Open a Savings Account With a High Interest

Putting all of your money in a CD might not be the wisest course of action. After all, access to CDs is restricted, and you want to save an emergency reserve that you may draw from in case of need. Conversely, high-yield savings accounts provide you with high interest rates and easy access to your money.

The average return on traditional savings accounts is presently 0.46%, whereas the average rate for high-yield savings accounts is currently substantially higher. This is crucial because without exceeding the current 3.1% inflation rate, your money would lose purchasing power.

Thus, as long as you can, it makes sense to take advantage of the high savings rates of today in order to generate a significant return. But keep in mind that high-yield savings account rates are variable, which means they might alter over time in response to changes in the broader rate environment. Opening a high-yield savings account today will allow you to start earning a significant return on your investment even if interest rates eventually decline.

Invest in Gold

Numerous analysts anticipate that the inflation rate will continue to decline over time as it has been declining. However, gold may prove to be a worthwhile asset to buy if those projections prove to be inaccurate and inflation turns out to be higher than anticipated in the next report.

And that's largely because of the special benefits and ability of gold to stave off inflation. For instance, during times of severe inflation, the value of the dollar may drop, leading investors to seek for assets that might serve as a safe haven for their money, which gold can. Because of this, the demand for gold usually increases along with high inflation rates, which also raises the price of the metal.

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