Today, savers and borrowers are affected because of inflation and interest rates. These two economic terms have a close relationship as they always move in the same direction. Interest rates help to establish the payment that savers are going to get on their deposits. Whenever they are higher, it makes saving more attractive and encourages savers around the world. But it has the opposite effect on businesses because it discourages them to borrow money, invest, and spend.
Simply put, inflation happens when money loses value. Banks tend to use interest rates to control it. In recent years, inflation has become higher and higher globally. This has happened due to the pandemic, the global energy crisis, and other factors. It has forced governments around the world to act and try to stop it.
How is This Affecting Savers?
When interest rates are high, savers are the ones that have more benefits. But what happens when they maintain the same level, and inflation is rising all the time? Let’s say you put $1,000 in a bank saving account, and the rate for that is 1% every year. You would get plus $10 every year. But if that year, the inflation is 5%, your cash would lose value. Your savings account would be left with $959, and you would lose part of your money, rather than saving more. That’s one way how savers are affected by this phenomenon. But, they can still try and protect their cash by investing in private banking fixed income products. These options allow you to protect yourself and enjoy financial growth.
Also, it is really important to hold the right amount of cash in your bank account. Professionals advise keeping between 3 and 6 months’ worth of wages in cash. That way you can protect yourself from rapidly-growing inflation.
The Bottom Line
People around the world are always looking for ways to put aside more money. Especially in the times we are living in, many people are trying to stay focused on their finances and earn more income. No matter one’s salary, age, or career, one can always benefit from extra money. But, saving is always better when you start from a young age. That way you’ll have enough money for your retirement and you can enjoy financial security. So, you should learn how to protect yourself from rising inflation and start putting aside some money… now.