{"id":146404,"date":"2023-01-18T13:58:15","date_gmt":"2023-01-18T20:58:15","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=146404"},"modified":"2024-01-19T10:42:57","modified_gmt":"2024-01-19T17:42:57","slug":"how-does-inflation-affect-savings","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-does-inflation-affect-savings","title":{"rendered":"Should You Be Saving Money Right Now?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC7030318419\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">The last year or so has been challenging for investors and savers alike. With inflation raging and many of the major markets in&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/how-the-housing-correction-will-affect-everyone\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">correction territory<\/span><\/a><span data-preserver-spaces=\"true\">, it\u2019s been difficult to find a safe place to park cash. Bond yields have been below the rate of inflation, and savings accounts have offered pathetic interest rates. Any money held in cash or bonds has been losing spending power against inflation. For real estate investors who often need time to save up cash between purchases, this can be a problem.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Luckily, it looks like things are starting to change. One silver lining of recent rate hikes is that as the Fed raises their federal funds rate, bond yields and the interest rate paid on money market and savings accounts tend to rise. This is exactly what we\u2019re seeing. These low-risk assets now offer the potential to earn a real (inflation-adjusted) return.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Bond yields have fluctuated between 3.5% and 4% for the last several months. According to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.bankrate.com\/banking\/savings\/best-high-yield-interests-savings-accounts\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Bankrate<\/span><\/a><span data-preserver-spaces=\"true\">, high-yield savings and money market accounts are now offering between 3.3% &#8211; 4.3% as of this writing.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Real vs. Nominal Returns&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Earning 3.5 &#8211; 4% is a decent rate of return for a low-risk asset, but that nominal (not inflation-adjusted) yield doesn\u2019t factor in inflation. To truly understand if these assets are a good option for investors, we need to look at the \u201creal\u201d rate of return. In this context, \u201creal\u201d means inflation-adjusted returns. For example, if inflation is 7%, and the nominal rate of return on a savings account is 4%, then your \u201creal\u201d return is actually -3% (4% &#8211; 7% = -3%).&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With the most recent inflation rate registering a 6.5% year-over-year growth rate, it may seem like real returns on bonds and savings rates are still negative \u2014 but that may not be the case. When you read about the Consumer Price Index (CPI), being up 6.5%, that is a backward-looking measurement. It means that prices grew 6.5% from December 2021 to December 2022. It doesn\u2019t tell us anything about what will happen in the coming year.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Inflation is Cooling<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Of course, we don\u2019t know what will happen in the coming year, but looking at the month-over-month CPI increases rather than year-over-year is helpful. Month-over-month data gives us a better idea of what\u2019s happened recently and clearly shows a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/the-fed-may-be-slowing-down\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cooling of inflation<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1168\" height=\"450\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/01\/fredgraph-43.png\" alt=\"CPI 2012-2022\" class=\"wp-image-146364\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/01\/fredgraph-43.png 1168w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/01\/fredgraph-43-300x116.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/01\/fredgraph-43-1024x395.png 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/01\/fredgraph-43-768x296.png 768w\" sizes=\"auto, (max-width: 1168px) 100vw, 1168px\" \/><figcaption class=\"wp-element-caption\"><em>Consumer Price Index By Percent Change (2012 &#8211; 2022) &#8211; <a href=\"https:\/\/fred.stlouisfed.org\/\" target=\"_blank\" rel=\"noreferrer noopener\">St. Louis Federal Reserve<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">Inflation grew consistently from 0.5% to 1.3% per month in the first half of 2022. This is, of course, incredibly high. Yet, the most recent reading shows monthly inflation actually declined by 0.1%. If inflation stays relatively flat (as it has the last few months), the year-over-year reading will be below 1% \u2014 well under the Fed\u2019s target. Compared to a 3.5% interest rate on a high-yield savings account, you\u2019d be making about 2-3% on your money.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But, assuming a flat monthly pace going forward is overly optimistic. Instead, let\u2019s average the last couple of months. If we go back to July 2022, when inflation started to cool, the average monthly inflation rate over those five months was 0.16%. Extrapolate that out for a year, and at the end of 2023, we\u2019ll see a year-over-year inflation rate of around 1.9%. This means you\u2019d still earn a real (inflation-adjusted) return of about 1.7% if your money was held in a high-yield savings account.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Even if you believe inflation will move higher on a monthly basis, say to 0.3%\/month over the coming year, that is an annual rate of inflation of 3.9%, which is above the Fed\u2019s target of 2%. It would be about even with the rate of return on a bond or money market account.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Saving Makes More Sense Now Than Before<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Of course, the real returns we\u2019re talking about are not huge and certainly won\u2019t build long-term wealth. But, I think this represents an important strategic consideration for investors. For the first time in more than a year, investors have a safe place to park cash where they can at least preserve their spending power, if not modestly grow. To me, this is crucially important in a complex market like the one we\u2019re in.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Over the last year, I\u2019ve felt a lot of urgency to invest my money in&nbsp;<\/span><em><span data-preserver-spaces=\"true\">something&nbsp;<\/span><\/em><span data-preserver-spaces=\"true\">to avoid my cash losing value to inflation. I wasn\u2019t making bad decisions just to hedge inflation, but it felt like a constant scramble to keep up with inflation. Now, I can earn a modest real return on my cash, which allows me to be patient, and wait for the best opportunities.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Personally, I am still looking to invest in real estate right now. I believe there are going to be interesting opportunities in this correcting market, but taking advantage of them takes patience and diligence. You can\u2019t buy just anything right now. Having a solid place to park cash gives you the ability to earn a real return while looking for the right long-term investments. This is what I intend to do. Hold some dry powder in a high-yield account and be opportunistic with my real estate investments. It\u2019s an approach I\u2019d recommend other investors consider as well.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">It\u2019s important to note that not all savings accounts are the same. According to my research, the biggest banks in the U.S., like Chase, Bank of America, and Wells Fargo, are still offering awful interest rates of around 0% &#8211; 0.5%, well below the rate of inflation. Other banks, like Barclays, Ally, and Marcus, offer between 3.5 and 4%.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So if you are interested in parking money in a high-yield account, do your due diligence and find a reasonable rate from a reputable bank. There are plenty of resources online that offer comparisons and reviews.&nbsp;<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">What\u2019s your plan for the next few months? Are you still looking to invest? How are you preserving your spending power as you wait for your next real estate investment?&nbsp;<\/span><\/em><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_64dd5ab97ed79\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-slate-900-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-large-font-size\"><strong>Analyze Deals Like a Pro<\/strong><\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. <em>Real Estate by the Numbers<\/em> makes real estate math easy, and makes real estate success inevitable. <\/p>\n\n\n\n<div id=button-custom-event-block_64138224164cd class='button-custom-event'>\n      <a href=\"https:\/\/store.biggerpockets.com\/products\/real-estate-by-the-numbers?utm_source=blog&#038;utm_medium=marketing_block\" x-on:click=\"window.analytics.track(&#039;Blog Block | Publishing: REBTN Book&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/how-does-inflation-affect-savings&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Get Yours Now<\/a>\n  <\/div>\n\n\n\n<div id=button-custom-event-block_641381f7164cc class='button-custom-event'>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/REBN_cover_mockup_01-e1679000020543.png\" alt=\"real estate by the numbers\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/how-does-inflation-affect-savings&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The last year or so has been challenging for investors and savers alike. With inflation raging and many of the major markets in&nbsp;correction territory, it\u2019s been difficult to find a [&hellip;]<\/p>\n","protected":false},"author":108611,"featured_media":146405,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7397,7119],"tags":[],"class_list":["post-146404","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-saving","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/146404","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/108611"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=146404"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/146404\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/146405"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=146404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=146404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=146404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}