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By LIZ WESTON
Inflation is proving to be a stubborn, unwanted houseguest.
No one particularly likes paying more for food, fuel and other living costs. But so far, the Federal Reserve's attempts since March to evict inflation with higher interest rates haven't worked. Because we may be stuck with this unpleasant roommate for a while, we should consider how best to cope.
The following moves could help.
Craft a better plan for your cash
Many people live paycheck to paycheck with little savings. Other people have the opposite problem: They're letting too much cash sit idle in bank accounts that aren't earning their keep.
As of October, the national average interest rate on savings accounts is just 0.17%, according to the Federal Deposit Insurance Corp. Meanwhile, inflation as measured by the consumer price index is over 8%.
"There's just no way that cash in the bank is going to keep up with inflation, so it's going to lose value," says certified financial planner Ben Henry-Moreland, who blogs at Kitces.com, a site for financial advisers.
You can get inflation-beating returns by using savings to pay down any high-rate, variable debt, such as credit card balances. If your credit card charges 18% interest, for instance, you're effectively getting an 18% guaranteed return by paying off that balance.
Setting goals and timelines for your cash also may help you get more for your money, Henry-Moreland says. For example, financial planners typically recommend maintaining an emergency fund equal to three to six months' worth of expenses. That money should remain somewhere safe and accessible, such as an FDIC-insured bank account, because you may need it at any time. But you don't have to accept a brick-and-mortar bank's negligible return; several online banks are offering interest rates of 2% or more on savings accounts.
Perhaps you'll earmark some savings for the vacation you want to take in a year or the down payment on a house in five years. You could lock your vacation money into a one-year certificate of deposit (some online banks are offering 3% on those ), while the down payment could be invested in a Series I savings bond, which is yielding 9.62 %. That's a great rate, obviously, but Series I bonds have several restrictions: You can't withdraw money for the first 12 months, and you'll forfeit three months of interest if you withdraw money in the first five years. You're limited to buying $10,000 in I bonds electronically at TreasuryDirect.gov each year and $5,000 more in paper bonds annually using your tax refund.