TIPS + equities
How to protect your savings from inflation
Cash savings at 0.5% APY lose purchasing power every year when inflation runs 3%. Effective inflation hedges include I-bonds (pay inflation rate + a fixed rate, capped at $10,000/year), TIPS (Treasury Inflation-Protected Securities), broad equity index funds (long-term real returns of 5-7%), and real estate. Stocks and real estate work over decades; I-bonds and TIPS work in any window.
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Try calculatorKey takeaways
04 · ideas- Savings accounts at 0.5% lose purchasing power at 3% inflation
- I-Bonds pay inflation rate + fixed rate, capped at $10,000/year
- Series I bonds paid 9.62% in May 2022 — highest in decades
- A 60/40 portfolio has beaten inflation by 3-4% annually since 1928
Keeping money in a savings account at 0.5% while inflation runs at 3% means you're losing 2.5% of purchasing power per year. $100,000 in that account is worth $77,000 in real terms after 10 years.
The inflation protection hierarchy:- Series I Bonds (I-Bonds): Government bonds that pay CPI inflation rate + a small fixed rate. Currently $10,000/year per person ($20k for couples). Must hold 1 year; 3-month interest penalty if cashed before 5 years.
- TIPS: Treasury Inflation-Protected Securities. Principal adjusts with CPI. Available in any amount. Best for large sums.
- Short-term bond ladder: CDs and bonds maturing 1–3 years. Reinvest at higher rates if inflation persists.
- Stocks: Long-term outperform inflation, but volatile short-term.
- Real estate: Rents and property values track inflation over time.
- Long-term fixed-rate bonds (locked into low real yields)
- Long-term CDs at below-inflation rates
- Non-interest-bearing cash (worst of all)