© . FILE PHOTO: US dollar banknotes are shown in this illustration, taken Feb. 14, 2022. REUTERS/Dado Ruvic/Illustration/File photo by Chris Taylor NEW YORK () – Cashsavers are currently stuck between a rock and a hard place. The interest rates in typical places to stash money, such as savings accounts, are almost always low. Meanwhile, inflation rates are the highest in decades — consumer prices in the United States soared to an annual growth rate of 7.9% in February, the Department of Labor said. That means that the purchasing power of your savings erodes bit by bit every month. “We’re definitely getting more questions about inflation,” said Roger Young, director of thought leadership at Baltimore-based investment managers T. Rowe Price. “We’ve had the luxury of not worrying about it for years, and this is a good reminder that inflation shouldn’t be ignored.” Cash is the mainstay of short-term savings — perhaps an emergency fund of three to six months’ worth of expenses to cover job losses or car repairs. You may also need money if you are saving for a down payment on a house. But the harsh reality is that there aren’t many good options for keeping it. That said, some strategies are smarter than others. Here’s What You Can Do With That Precious Money: SAVINGS ACCOUNTS AND CDS The Federal Reserve has indicated that higher interest rates will be in the future to help curb inflation, so more attractive rates should appear in basic banking offerings such as savings accounts. So far, the effects have been marginal. When personal finance site Bankrate surveyed the best savings account rates for March, the top results were Comenity Direct (0.60% annual percentage return), Barclays (LON:) Online (0.55%) and Ally Bank Online (0.50% ). Certificates of deposit offer slightly better returns, although they typically require you to lock up money for a longer period of time. The best two-year CDs right now are Pentagon Federal Credit Union (1.25%), Live Oak Bank (1.1%) and Popular Direct (1.1%), according to Bankrate. SHORT-TERM BONDS In times of rising interest rates, long-term bond funds are often hit quite hard. But short-term bond funds can be a useful place to keep your money — they generate more potential returns than savings accounts, while offering less risk than longer-term fixed income. Gold-rated funds from Chicago-based research firm Morningstar include Vanguard Short-Term Corporate Bond Index (VSTBX), T. Rowe Price Short Duration Income I (TSIDX) and PIMCO Enhanced Low Duration Active ETF (LDUR). Treasury Inflation-Protected Securities (TIPS), whose principal increases with inflation, offer some shelter. “TIPS are the best of a whole bunch of bad options,” advises Matt Bacon, a financial planner in Gaithersburg, Maryland. DIVIDEND-DISTRIBUTING SHARES Dividend-paying stocks are worth checking out for better returns. The average return is around 1.4%, although you can find many quality companies that pay out more than 2 or 3% – many multiples of the rate you find on savings accounts. However, there are a few risks. The value of the underlying securities could fall at any time, so if you need to sell in the short term, you could be in a tight position. And dividends can be cut by companies in times of trouble, so look to companies that have a long track record of maintaining and increasing payouts, such as the so-called dividend aristocrats. HIGH INTEREST CREDIT CARD DEBT If your emergency fund is covered and you have extra cash, there’s one place to get a guaranteed return: paying off high-interest credit card debt. Get rid of a revolving balance on a card that charges 15% annually, and you can think of it as a 15% return. It’s a more complicated discussion when it comes to paying off mortgages, car loans or student loans, which can be locked up for a long time at attractively low rates. But for credit card debt that can spiral out of control, it’s almost always a good idea to eliminate it with cash reserves. While these are a few ideas for getting a slightly better return on your savings, don’t go overboard and take too much risk – which negates the purpose of having cash in the first place. “There’s no need to get too fancy with the cash portion of a portfolio,” said financial planner Marco Rimassa of CFE Financial in Katy, Texas. “Especially in this volatile investment environment, cash has a place in most asset allocations as a risk damper — and is just the way it is.”
