Top high-yield savings accounts are still beating inflation. Here’s why that’s important

Personal finance fact: Your money loses purchasing power over time, especially if it’s in a savings account that isn’t earning interest. But there’s good news for savers: top savings yield are outpacing inflation.

The current savings rate environment features many top savings account with annual percentage yields (APYs) that are beating inflation, which is currently at 2.7 percent year-over-year, according to the most recent Consumer Price Index. That wasn’t the case more than a year ago, when inflation was more than twice what it is now.

Despite the recent announcement from the Federal Reserve that it lowered the federal funds rate by another 25 basis points, or a quarter of a percentage point, savings rates remain elevated.

In recent years, inflation peaked at 9.1 percent in the summer of 2022. And you likely weren’t going to earn a 9 percent annual percentage yield (APY) in a savings account from a bank insured by the Federal Deposit Insurance Corp. (FDIC). “When inflation is 9 percent, all cash underperforms inflation,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “But over a longer period of time, if you’re seeking out the top-yielding account, you’re giving yourself the best chance to keep up with inflation,” he adds.

Luckily, inflation has come down drastically and top high-yield savings accounts are still beating inflation, even as the Federal Reserve cuts interest rates, and by extension, as banks lower APYs on deposit accounts. Here’s a breakdown of the inflation rate and how it compares to current yields on savings accounts.

How does inflation affect savings?

Money that doesn’t keep up with inflation is losing purchasing power.

Say you spent $20 at a restaurant in November 2019. Revisit the restaurant in November 2024, and you’d likely need $24.53 to buy the same items you purchased five years ago. So, you’d either have to consider not getting an appetizer, a drink or get a less expensive meal. Or you’d have to scrounge an extra $4.53 to pay for the bill.

That’s how inflation affects your savings. Having that money in a high-yield savings account paying a competitive yield would keep up with inflation better than the money that would merely sit in your home not working for you.

Reasons why keeping up with inflation matters

Earning an APY that’s not only keeping up with inflation, but that’s surpassing it, helps maximize your savings at a time when prices remain elevated on various goods and services. This, ultimately, gives you the ability to afford more of the things you want and need.

Here are five reasons why keeping up with inflation matters.

1. A dollar today won’t buy as much as it will in the future.

Prices generally increase over time and money that isn’t keeping pace with inflation loses purchasing power over time. So, that $50 you got as a gift November 2019 but stashed in your sock drawer could have bought $50 worth of goods back then. But in November 2024, you’d need an extra $9.06 to have the same buying power.

If you’d put that $50 in a 5-year CD at 3.40 percent APY, which was one of the highest yields available for that term length in 2019 according to Bankrate data, you would have earned $9.10 in interest.

“If I have my money earning money at some percentage — even if it’s not exactly the same as inflation — and if I’m maximizing my savings, I get closer to meeting my inflation needs when inflationary periods hit,” says Jill Schlesinger, certified financial planner and business analyst for CBS News.

2. You actually have the opportunity to beat inflation right now.

A savings account at the national average rate hasn’t outpaced inflation during a month since October 2015 but top yields are beating inflation by more than two percentage points right now.

If you’re banking with a big bank though, you’re likely not beating inflation. Many of the biggest banks pay even less than the national average rate. A Bankrate survey published in March found that 17 percent of people weren’t earning any interest on savings, and 11 percent were unsure how much interest they were earning.

But if you put money in a savings account at an online FDIC-insured bank that’s paying a competitive yield, you’ll beat the current inflation rate and protect your purchasing power.

3. Inflation matters for retirement.

No matter whether you’re many years from retirement or are already retired, you need to keep up with inflation during retirement because you’ll likely be earning less. And your top earning years are likely behind you.

“If you’re planning for retirement, and you are planning to say, ‘OK, I can live on $5,000 today,’ Well if $5,000 today is … not the same amount of money as $5,000 ten years from now, you’ll need more money,” Schlesinger says. “So your money that you have has to grow faster than the rate of inflation to simply meet the needs that you have.”

Inflation will affect someone retiring in around five or ten years both before and during retirement.

• $10,000 in November 2019 has the same buying power as $12,266 in November 2024.
• $10,000 in November 2014 has the same buying power as $13,359 in November 2024.

Here’s a look at how inflation impacts money today versus 20 and 30 years ago:

• $10,000 in November 2004 has the same buying power as $16,517 in November 2024.
• $10,000 in November 1994 has the same buying power as $21,075 in November 2024.

Source of calculations: CPI Inflation Calculator, Bureau of Labor Statistics

4. Inflation isn’t likely to go away.

People should plan on an average inflation rate of at least 3 percent over the long term, McBride says.

“Essentially, a growing economy will have inflation,” Schlesinger says. “So the reason why the Fed really wants to control inflation is that inflation is quite pernicious. It impacts every single person.”

5. Avoiding a double whammy.

When high inflation and market losses combine, it’s called a double whammy and it can be bad for your finances. For example, the S&P 500 was down 18.1 percent in 2022 and inflation reached 9.1 percent in June 2022. 

You can’t control the market, but you can at least try to have your savings outpace inflation to avoid being hit twice in the same year.

Open an online savings account with a competitive yield

To outpace inflation, find the highest-yield savings account, at an FDIC-insured bank, that works for you. You’ll typically find the highest yields at online banks. Look for consistency in APY, because rates on savings accounts are generally variable. 

You also want to make sure the account has a minimum opening deposit amount you’re comfortable with and that it doesn’t have any fees that are going to eat away at your competitive yield.

Opening an account online is usually a quick and straightforward process. You’ll be asked for information such as your name, Social Security number, date of birth and street address.

These days, some high-yielding savings accounts are earning more than 20 times the rate offered by many big brick-and-mortar banks. For perspective, $10,000 in a high-yield savings account that earns 4.50 percent APY and compounds monthly would earn around $449 more in interest after a year than in an account that earns merely 0.01 percent APY, which is what some of the biggest banks are paying.

Bottom line

It’s easy to feel good about the money you’ve saved, but the money you have right now won’t be able to buy as much in the future. Your money loses purchasing power when the yield it’s earning doesn’t outpace the rate of inflation. Keeping up with inflation is a marathon, not a sprint. You can make sure you’re keeping up with it by having your savings in a competitive yielding account, which are usually found at online, FDIC-insured banks.