Key Takeaways
- Though inflation has come down from record highs, it’s proving sticky in a range above 3%.
- If your cash savings are earning less than that, the future purchasing power of your money is eroding.
- Fortunately, you can easily out-earn inflation with today’s best savings, money market, and CD accounts—with options paying up to 5.65%.
- I bonds are another inflation-beating option but are best for savers who are socking away funds for the long haul.
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How Much You Need to Earn to Beat Today’s Inflation
After the pandemic, inflation surged to its highest level in four decades, with the Consumer Price Index shooting as high as 9.1% in June 2022. It was an astonishing development, especially considering that prior to COVID-19, monthly inflation readings had been below 3%—and often below 2%—since 2011.
This rising inflation propelled the Federal Reserve to implement 11 increases to the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level since 2000. And to a large extent, the Fed’s rate hikes worked: By June 2023, the inflation reading had fallen all the way down to 3.00%.
Unfortunately, in the nine months since, the inflation rate has not continued its downward path. Instead, it has been bobbing around, including a surprise March 2024 reading that rose to 3.50%.
With inflation still at this level, it means any savings you have that is earning less than 3.5% is losing value over time. To keep pace, you need to earn at least today’s inflation rate. But to get ahead, you need to earn even more. Fortunately, there are four easy ways to do this:
- Certificates of deposit (CDs)
- High-yield savings accounts
- Money market accounts
- I jump
Choosing the best one for you will depend largely on when you want to use the money. We lay it all out below.
Strategy 1: Top-Paying CDs
For savers, one of the happy byproducts of the Fed’s aggressive rate-hike campaign is that it triggered banks and credit unions to dramatically raise—and keep raising—the interest rates paid to customers for their savings deposits. Among these winning accounts are certificates of deposit (CDs), whose rates skyrocketed in 2022 and 2023.
As a result, if you shop among the best national CDs, you can earn well over the current inflation rate with a CD of any term length. But what’s more useful about CDs is that you get to keep that rate until the CD’s maturity date. So even if the Fed starts cutting interest rates (which, in turn, will prompt financial institutions to lower the rates they’re willing to pay on deposits), your CD rate will be guaranteed until the end of your term.
While it’s possible inflation could rise from its current level, the Fed is committed to pushing it lower. If they succeed, that means any CD rate you have locked in for months or years down the road will bring an even bigger inflation-beating benefit to your savings.
To earn the promised rate of a CD, you have to commit to keeping the funds there for the full CD term. If you find you need to cash out before then, you’ll be charged an early withdrawal penalty. So it’s best to carefully choose a CD term that you feel confident you can stick to.
Strategy 2: High-Yield Savings Accounts
Not able or willing to commit your funds to a CD? Another excellent option right now is a high-yield savings account, which will let you make withdrawals whenever you like. That means it’s a great option for money you may need to use in the short term.
While you can’t always earn more than inflation with one of these accounts, the Fed’s recent rate campaign has pushed savings account rates to their highest level in 20 years. Right now, our ranking of the best high-yield savings accounts includes a top rate of 5.55%, and more than 10 additional options paying 5.25% or better.
On the downside, savings accounts are variable, so they offer no rate guarantee for the future. There is no way to know what any given savings account will pay later this year or in 2025. But for now, savings accounts are riding a high, which could last for several months still.
If you have a brokerage account, you may be able to earn a high rate on your savings with one of their cash accounts. Several brokerage and robo-advisor firms offer cash management rates that are competitive with top high-yield savings accounts.
Strategy 3: Money Market Accounts
If you want to keep some of your funds accessible for easy withdrawal but want the option of writing paper checks, money market accounts are your answer. A money market account behaves just like a savings account but with the added feature of check-writing. Like a savings account, money market accounts may limit how many withdrawals you can make in a month. But many no longer stipulate such limits.
Though sometimes the best money market rate is higher than the best high-yield savings account rate, there are a lot more high-yield savings accounts in the marketplace—and therefore stiffer competition on rates. As a result, you can see below that for most of the past two years, you could earn more from the best savings account than the best money market account. But in both cases, today’s top rate being above 5% means you can clearly out-earn the bite of inflation.
Strategy 4: I Bonds
I bonds get their name because they are structured to pay a rate that tracks inflation. So it seems like this would be a sure-fire strategy to make sure your cash savings out-earn what you’ll lose to inflationary price increases.
This is true for long-term investors, such as those who are retired or are approaching retired status and want to keep some of their savings somewhere safer and more reliable than the stock market. I bonds last for up to 30 years, though you can cash them out after 1 year with a penalty and after 5 years with no penalty. Given the formula for I bond rates, the semi-annual interest rate will always adjust to account for recent inflation rates. So if inflation is high in the future, your existing I bond’s rate will also increase.
Some I bond investors invest $10,000 every year (the annual maximum) and hold onto them until they need the money.
But for shorter-term savers, I bonds are not at this moment a great strategy. And that’s due to the relative strength of the three strategies above. I bonds issued right now are paying 4.28% for their first six months. That’s nothing to sneeze at, but we have no idea what those bonds will pay in their next six-month period, or beyond. The rate could go down considerably—and it’s reasonably expected to do that if the Federal Reserve succeeds in its inflation-fighting goals.
In contrast, the best high-yield savings and money market accounts are paying a percentage point or more above 4.28%. Those rates won’t last forever either, but they have room to decline before matching the I bond rate. And as we discussed, CDs allow you to lock in your rate for months or years down the road. That allows you to not only out-earn I bonds by a significant margin now, but also eliminate the uncertainty and surprises that can come with rate variability in the future.
How We Find the Best Savings and CD Rates
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (eg, you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
