Dead money: Your savings account is losing the fight against inflation — where 4 financial advisors grow their cash instead

Unfortunately, with prices rising so much, savers are being hit hard — especially those with their money in a traditional savings account, which the FDIC reports offer national deposit rates averaging 0.38% as of mid-August.

There are high-yield savings accounts that pay more than average, but these accounts often still don’t offer rates generous enough to help investors keep pace with such high inflation, let alone to get ahead.

Fortunately, there are other investment options. We’ve checked in with several financial advisors to find out what they’re doing with their money to stay ahead of rising prices. Here’s what they had to say.

1. Floating-rate Treasury funds

A floating-rate Treasury fund is the investment of choice for Domenick D’Andrea, an accredited investment fiduciary, certified retirement plan counselor, and co-founder of DanDarah Wealth Management — after making sure he has emergencies covered, of course.

“I make sure that I keep just enough in my savings account to cover up to six months of my normal expenses,” D’Andrea told Moneywise. “I have the rest of my liquid cash in a floating-rate Treasury fund. This yields me over 3.69% and avoids state taxes.”

A floating-rate Treasury fund is an ETF or mutual fund that invests pooled funds primarily in U.S. Treasury Floating Rate Notes (FRNs). Treasury FRNs have variable interest rates, unlike traditional Treasury bonds, but are still considered fairly safe investments because the underlying assets are U.S. government notes.

These funds provide rate protection as payouts adjust periodically with changes in short-term Treasury rates, and they are also considered highly liquid. D’Andrea explained that he chose them because the potential return is better than what a traditional savings account could offer.

“With the interest rates at my bank running below what inflation is at, I had to look at other options,” he said. Of course, like most good investors, he also makes adjustments as needed based on market conditions.

“I have used high-yield savings accounts, and CDs based on what the rates are. If I can get above 4%, I may move some of the funds out of the floating rate fund into either a high-yield savings or a CD.”

2. Money market funds and dividend stocks

Brando Reyna, CFA, founder and managing principal of Reyna Capital Advisors in Charlotte, NC, also prioritizes his rainy-day fund. Once he’s happy with his emergency stash, he puts some of his cash into a money market fund and some into stocks with a record of growing dividends.

“Current yields [on money market funds] are close to 3.5%, and with electronic transfers, money can easily move back and forth between your bank without any fees in a timely manner,” Reyna told Moneywise. He explained that while CDs can sometimes provide similar, or even higher yields, it’s important to be careful because they are much less liquid.

“If for some reason you need access to the funds before the CD matures, you’ll likely forfeit all the interest you would have received, whereas the money market pays you for the time you were invested,” he explained.

While money markets are a lower-risk option with greater liquidity, Reyna also touted the benefits of Vanguard’s Dividend Appreciation ETF for funds he can afford to subject to greater market fluctuations, as the Vanguard ETF has a current yield of 1.44% but also has a long-term growth rate of 11.4%.

Reyna believes the dividend fund is a “great alternative as you can easily beat out inflation if historical trends stay in place,” and said that while he does invest in both the money market and dividend fund, “the best hedge against inflation is high returns or dividends, so that’s why the investment piece is more important than the money market savings portion.”

3. Equities

Finally, investing in the equity market is an obvious choice to help win the fight against inflation, and is a preferred investment option for Clifford Cornell, a financial advisor with Bone Fide Wealth, LLC.