September 28, 2022

Want to hedge against inflation? This tip might help

Chris Harris is the Chief Financial Officer of SAFE Credit Union.

We seem to live in a world of extremes, from politics to the environment, and inflation is clearly at the top of the list, directly challenging ordinary Americans.

The current inflation rate is close to 9.1%, the highest in over 40 years. The average inflation rate over the past 10 years (excluding 2022) has been 1.9%. Inflation started its meteoric rise in April 2021 and averaged 4.7% that year.

Inflation impacts every aspect of our lives, from what we pay for at the gas station or the grocery store to how much we can save.

Like everything in life, these difficult times can also present opportunity, even for those with limited disposable income. For example, due to record inflation, there is a great opportunity for individuals to purchase government-issued Series I bonds. Regular savings accounts earn a paltry 0.05%, and I bonds currently pay 9.62% interest.

According to the Treasury Department, I bonds can be purchased at the current rate of 9.62% until October 2022, before the new rate is assessed. New rates, based on current inflation, are reviewed twice a year.

You can buy these bonds for as little as $25 with a maximum of $10,000 per year. To put this in a little perspective, if a person bought a $1,000 I bond, the interest earned after one year would be about $96.20. That same $1,000 left in your savings account would earn you $5 in interest in the same year.

Unlike the days when it took 30 years for that $50 or $100 savings bond to reach maturity, I bonds are purchased at face value (a $25 bond is purchased for $25) and interest are compounded semi-annually for 30 years.

You can cash out an I Bond after only 12 months, but if you cash it in before it’s 5 years old, you’ll lose the last three months of interest. You can find more information about Series I Bonds at www.treasurydirect.gov.

While I bonds are somewhat of a bright spot, it’s important to note that the record inflation rates we’re experiencing are simply making it much harder for consumers to meet basic expenses. In many cases, Americans use credit to pay for basic necessities, including groceries and utilities, to meet these weekly or monthly obligations. Business operating costs have risen dramatically and are undoubtedly being passed on to consumers in the form of higher prices.

In light of this, there are other ways to keep your costs down, like checking with your car insurance company to make sure you’re getting the best rate, especially for those of you who are now working from home. ; negotiate your credit card rates to get the best possible rate or look for lower rate credit cards that also offer no charge to transfer your balance; cancel that gym membership that you are not using; and check with your cell phone or internet service provider to make sure you’re getting the best possible rate.

There are small signs that inflation may be easing as gasoline prices finally seem to be coming down, which will impact everything we buy. While home values ​​remain at very high levels, existing home sales continue to decline due to affordability and economic uncertainty. This is causing inventory levels to slowly increase and many markets are starting to see prices peak, which could provide opportunities for some in the future.

But we are far from escaping the wrath of these record levels of inflation and prices. There are no easy solutions, so in these difficult times, we all need to be more vigilant with our income and minimize unnecessary expenses. Make a budget if you haven’t already and, if possible, pay off or pay off the higher interest rate debt first. Taking control of your finances and taking advantage of opportunities, even those as small as $25, will help us all weather this period of high inflation and safeguard our financial well-being.

Chris Harris is Chief Financial Officer of SAFE Credit Union. He can be contacted at mediainquiry@safecu.org.

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