Jun 12, 2026
As inflation creeps upward, many American households are losing their purchasing power — meaning their dollars don’t stretch as far as they used to.
In May, inflation rose to 4.2% over the previous year, up from 3.8% in April, according to the latest Bureau of Labor Statistics. That’s the highest rate in three years. The Fed’s goal is to keep inflation around 2% annually.
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That jump is due, in large part, to higher energy prices driven by the Iran war. Compared to 12 months ago, the cost of energy has risen by 23.5%, with gasoline surging 40.5%. The initial oil shock of March is also trickling through the economy, impacting other areas that rely on oil and gas, such as airline fares.
Spreading the pain
And the financial pain points are spreading for Americans. As wage growth stagnates, household budgets are feeling the squeeze, especially with essentials like groceries and gas.
Consumer sentiment reflects this, with household expectations around their own finances and future credit access deteriorating, according to the Federal Reserve Bank of New York’s May 2026 Survey of Consumer Expectations.
At the same time, if you have cash sitting in an account that earns less than the rate of inflation, it’s losing its purchasing power. In other words, the same amount of money buys fewer goods and services than it did previously.
So, for example, while a $100 bill is still equal to $100, you might notice that you can’t buy as many groceries with it as you did previously. While trimming unnecessary expenses can help, this is difficult for households that are already stretched thin.
Ideally, you’ll want to stash your cash and emergency savings somewhere that minimizes the impact of inflation. Here are a few options.
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High-yield savings accounts (HYSAs)
If you have an emergency fund, you want those funds to be easily accessible if and when you need them — not locked away in long-term investments. One option is a high-yield savings account, since you earn a higher rate of interest than a checking or traditional savings account, yet your cash is still liquid.
Traditional savings accounts offer an annual percentage yield (APY) of just 0.61%, while a HYSA can offer up to a 4% APY, according to Bankrate’s survey of institutions. A rate of 4% still doesn’t beat May’s inflation rate, but it can help your cash keep up more than a traditional account.
Money market accounts (MMAs)
A money market account also offers a higher interest rate, similar to an HYSA, but with the flexibility of a checking account — such as the ability to write checks or withdraw funds with a debit card.
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An MMA could be ideal for emergency or short-term savings, but keep in mind that it might come with a higher minimum balance requirement than a savings account. And, if your balance dips below that, you could be charged a monthly fee or possibly be dropped to a lower interest rate tier.
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Certificates of deposit (CDs)
A certificate of deposit also offers a higher interest rate, but over a set term — from a few months to more than five years. Once your CD reaches maturity, you’ll get your principal back (the original amount you deposited) plus interest.
But, with a set term, your money is less liquid than in a HYSA and, if you withdraw your funds early, you’ll typically pay a penalty and potentially lose out on the gains you’ve made. But a CD could be an option if you won’t likely need immediate access to your cash — say, for example, if you’re saving for a wedding or a vacation. There are also no-penalty CDs that allow you to withdraw your money without paying for it, but those may come with lower interest rates.
U.S. Treasury securities
There are different types of U.S. Treasury securities: T-Bonds, T-Bills and T-Notes. T-Bonds are fixed-income securities that mature in 20 or 30 years. While they generally have lower returns than stocks, they’re popular for their stability, liquidity and fixed returns. Treasury Inflation-Protected Securities (TIPS) are a type of bond that’s adjusted to keep up with inflation.
T-Notes, on the other hand, typically mature in two, three, five, seven or 10 years. With longer-term options, including T-Notes, T-Bonds and TIPS, investors receive a ‘coupon,’ or a fixed rate of interest, every six months until maturity.
T-Bills, on the other hand, mature in a year or less. Currently, a three-month T-Bill has an annualized 3.7% yield, while a one-year T-Bill comes in around 3.9%.
Another way to get exposure to Treasurys without buying individual bonds is through Treasury exchange-traded funds (ETFs). This investment fund holds a basket of Treasurys and trades on stock exchanges. But there’s a cost for both actively and passively managed ETFs, so do your research to find the right fit.
Municipal bonds
While traditional bonds typically don’t perform well during times of inflation (bond prices tend to fall when interest rates go up), municipal bonds – which are debt securities that are issued by states, cities and other public entities – could be an option for people in a high tax bracket or a high-tax state. With municipal bonds, or munis, you don’t pay federal tax on interest, nor do you pay state taxes if you live in the state that issued the bond. However, munis can be riskier than Treasurys, since they rely on local revenue and could potentially default.
Other ways to fight back against inflation are to trim discretionary expenses and consider signing long-term contracts to lock in costs (where it makes sense). It’s also a good time to prioritize paying down high-interest debt. Paying 21% interest on accumulating credit card debt will negate that 4% you’re earning in a high-yield savings account.
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Vawn Himmelsbach is a veteran journalist who covers tech, business, finance and travel. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, CBC News, Yahoo Finance, MSN, CAA Magazine, Travelweek, Explore Magazine and Consumer Reports.
