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How to save more amid inflation in 2022

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Have you been left scratching your head at the petrol pump or grocery store, wondering why everything is costing so much? This is due to rising inflation, which has been caused by a combination of factors such as labour shortages, supply chain restrictions, and the conflict in Ukraine. 

Inflation at the moment is hovering around 5.1% with real wage growth at about 2.3%. That means wages are actually shrinking by 2.8%. What’s even worse is that the RBA official cash rate is only 0.35%, which means interest on your deposits has a long way to go until it catches up with inflation. 

So, what can you do? 

Here are some tips to save more even if inflation eats into your “savings” during 2022.

Using term deposits

Term deposits are a safe, stable, and common way to get more money from your savings. A term deposit is a large amount of money (at least $500) that is held by a bank or credit union for a “term” – a fixed amount of time. This can range from six months to even decades in some cases.

For example, a term deposit may have an interest rate of 5% per annum (p.a.) over five years. The interest is then paid on the deposit when the deposit matures or ends. 

For longer term deposits, interest may be re-invested annually. Depending on your bank, you may get interest calculated monthly or daily. 

The downside is, you cannot touch the money until the term finishes – or be penalised for taking it out early. 

High-interest savings accounts

High-interest savings are almost the same as your standard savings accounts, except they come with a higher interest rate than most others on the market. 

These accounts can offer high interest because they will give you more interest if you keep depositing money more often than you take it out. This may be in the form of bonus interest each month if you deposit at least a certain amount, offer compound interest – interest on your interest! – or another incentive so you keep saving instead of spending.

However, if you need your money in a pinch, you might be penalised with forgoing interest for a month or slugged with extra fees. Either way, you should look into a high-interest savings account as a good way of beating inflation.

Micro-investing

Another way to beat inflation is to use micro-investing apps such as Raiz, eToro, or Spaceship Voyager. These apps allow you to invest small amounts of money – spare change even – into Exchange Traded Funds (ETFs) which are regulated by ASIC. 

Returns on the stock exchange are given back to you as dividends – the more you invest, the more dividends you may get. However, this is the riskiest way to beat inflation. If the stock market plunges, so does your balance. This is more a long-term saving strategy than a medium-term solution to stay ahead of inflation – so use them at your own risk.

Remember the information here is general in nature and not a substitute for financial advice.


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