Even if you’ve been diligently saving, your money might be losing value faster than you think. Daniel Altman, economist and author of the High Yield Economics newsletter, believes that due to the devaluation of the dollar, keeping too much money in a savings account can wreck your finances.
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Here’s a closer look at why that is and what to do instead.
Why the Dollar Is Losing Value
The dollar is falling due to a combination of market forces.
“Expectations for inflation have risen, so foreigners anticipate that dollars won’t be worth as much in the future — they won’t be able to buy as much stuff, so they don’t want to pay as much for dollars,” Altman said. “As a result, other currencies have become relatively more attractive.”
In addition to inflation, there are other factors that are leading to a lower perception of the dollar.
“These expectations have changed in part because of tariffs, but also because the national debt has grown so large,” Altman said. “Without spending cuts or tax increases, devaluing the debt via inflation may be the only way to sustain it. With this in mind, investors are starting to rebalance their portfolios away from dollar-denominated assets.”
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How Inflation Hurts Everyday Savers
Dollar devaluation is hitting ordinary Americans hardest because they are more likely to have more of their wealth held in savings accounts.
“When inflation rises, traditional savers lose,” Altman said. “Savings instruments and bonds typically pay a fixed return in dollars, regardless of inflation. So, if prices rise, these Americans won’t be able to buy as much stuff with their savings.”
Better Places To Store Your Cash During Inflation
While it’s important to keep an emergency fund in a liquid savings account, any additional funds should be kept in assets that are less affected by the value of the dollar.
“Assets that tend to maintain their value in the face of inflation include stocks, real estate, precious metals and other durable commodities,” Altman said. “Their prices rise along with prices for consumers, since incomes and profits usually rise as well. For example, if a company’s costs double and the company doubles its prices, then its profits and share price will probably double as well.”
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This article originally appeared on GOBankingRates.com: Economist Warns: Savings Accounts Won’t Protect You From Inflation
