Handling Cash During Inflation

All your questions are answered on handling cash during times of inflation.

 

1. Why is it not a good idea to keep cash at home? 

While it’s perfectly OK to keep some cash at home, storing a large amount of funds in a house has two significant disadvantages: 

 

  • The money can be lost or stolen. Hiding cash under the mattress, behind a picture frame or anywhere in the house always carries the risk of it being misplaced, damaged or stolen. As careful as a person may be, circumstances beyond control may cause anyone to lose that money. Unfortunately, there is no way to trace or reclaim lost cash.  

  • The money isn’t growing. When cash doesn’t grow, it loses some of its value. This is especially true during times of rapid inflation. The current inflation rate is hovering at approximately 8.5%. This means if someone keeps $1,000 at home for the next year and inflation remains at this rate throughout that time, the cash would be worth only $985 in one year’s time. Of course, if inflation rates increase, the loss would increase as well.  

 

2. Where is the best place to keep cash? 

In times of high inflation, and anytime at all, it’s best to keep the money not needed for day-to-day expenses in a place where it can grow. This way, the growth will serve as a hedge against inflation. When inflation is lower, funds can grow generously, especially if kept in a savings vehicle for an extended period of time. Here are some places you may want to keep your cash at this time: 

 

  • Savings account. A savings account offers a safe and secure place to keep extra funds. When opening a savings account at CSE FCU, there’s no risk of  money being lost.  

  • Real estate. The real estate market has experienced an explosion since the pandemic and can be a great hedge against inflation for the investor. Before going this route, though, make sure to have enough cash on hand to manage property and cover any relevant expenses, such as property taxes, repairs and more. If hesitant to invest in a physical property now, consider owning publicly traded securities instead. 

  • Share certificates. A share certificate is a savings account that is insured and has a fixed dividend rate and a fixed date of maturity. A share certificate can guarantees a higher rate of return without the risk of investing. Historically, CSE has paid higher dividend rates than other financial institutions in our market. The fixed dividend rate will remain unaffected by the national interest rate, which can fluctuate tremendously during times of high inflation.

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