The consumer price index<\/a>, a key inflation measure, rose 4.2% in May<\/a> from a year earlier, according to the Bureau of Labor Statistics’ release issued Wednesday. The increase<\/a> was driven largely by higher energy<\/a> prices due to the effects of the Iran war, which started Feb. 28. That annual rate is up from 3.8% in April, 3.3% in March and 2.4% in February.<\/p>\n While inflation is a normal part of the economy<\/a> \u2014 and is now far below the 9.1% pandemic-era peak hit in June 2022 as measured by the CPI \u2014 the current rate exceeds the Federal Reserve<\/a>‘s goal of 2% annually<\/a>.<\/p>\n Read more CNBC personal finance coverage<\/p>\n In general, money that sits in an account earning less than the inflation rate is losing purchasing power over time. While cash<\/a> provides liquidity, where you keep it can make a meaningful difference in how effectively it helps you combat inflation.\u00a0<\/p>\n For money you may need in the coming months or within the next few years, you shouldn’t try to take on too much risk, experts say.\u00a0<\/p>\n “The goal should not be to beat inflation by taking unnecessary risk with cash, but to make sure idle balances are working as efficiently as possible,” said certified financial planner Alex Canellopoulos, director of wealth and a partner at Vista Capital Partners in Portland, Oregon.<\/p>\n “The key is to match the cash vehicle to the time horizon” for when the money is needed, Canellopoulos said.<\/p>\n Keep emergency savings accessible<\/p>\n For money set aside as a cushion or emergency savings<\/a>, many advisors recommend high-yield savings accounts.<\/p>\n “The difference between what a major bank pays on a standard savings account and what you can earn at an online bank or credit union is real money, and most people are leaving it on the table,” said CFP Jeff Judge, managing partner at Chesapeake Financial Planners in Forest Hill, Maryland.<\/p>\n The current national average savings account annual yield is 0.62%, compared with some high-yield savings accounts paying around 4%, according to Bankrate<\/a>.<\/p>\n Money market accounts also offer a place to park your cash and earn interest<\/a>, similar to a high-yield savings account. Plus, they often come with check-writing ability or debit card access<\/a>. However, they may require a higher minimum balance than savings accounts.\u00a0<\/p>\n There are also money market funds, which you can access through a brokerage account. They have yields<\/a> similar to money market accounts, but they are mutual funds rather than deposit accounts.<\/p>\n How to get more yield if you can wait <\/p>\n If you don’t need immediate access to your cash, you can also consider certificates of deposit<\/a>, or CDs, experts say.<\/p>\n CDs have a set term that can range from a few months to five or more years. At maturity, your bank returns your principal plus the interest it guarantees. However, this makes CDs less liquid \u2014 if you cash out early, you’ll typically pay a penalty representing a portion of the interest.<\/p>\n While the average national annual yield for one-year CDs is 1.98%, some banks are offering more than 4%, according to Bankrate<\/a>.<\/p>\n For cash you can hold for six to 12 months without touching, short-term treasury bills are worth a serious look.<\/p>\n Jeff Judge<\/p>\n Managing partner at Chesapeake Financial Planners<\/p>\n Treasury bonds and bills are also a relatively safe place to put cash, but they vary in liquidity and interest payments.<\/p>\n “For cash you can hold for six to 12 months without touching, short-term Treasury bills are worth a serious look,” Judge said.<\/p>\n Right now, a three-month <\/a>Treasury has about an annualized 3.7% yield; for a six-month Treasury, it’s 3.8% and a one-year bill is about 3.9%. Both shorter-term and long-term Treasury yields held relatively steady<\/a> early Wednesday, despite the new CPI data.<\/p>\n Additionally, while the interest earned from Treasurys is taxable at the federal level, it is exempt from state and local income taxes, Judge said \u2014 which “matters for people in high-tax states.”<\/p>\n Treasury ETFs may be an option<\/p>\n It’s also possible to get exposure to Treasury bills through exchange-traded funds<\/a>, which can be bought and sold throughout the day like stocks and may be either managed actively by professional investment managers or passively, meaning they track an index.<\/p>\n “For my clients and my own personal cash, I prefer ultra-short Treasury ETFs,” said CFP Sean Lovison, founder and financial advisor at Purpose Built Financial Services in Moorestown, New Jersey. “You get a yield backed directly by the U.S. government [and] daily liquidity.”<\/p>\n There’s a cost to owning ETFs<\/a>. The average annual expense ratio \u2014 the percentage of your assets paid as a fee \u2014 for bond ETFs that own Treasurys is 0.17% for actively managed ETFs and 0.09% for those that are passively managed, according to Morningstar Direct.<\/p>\n There are also traditional mutual funds that invest in Treasurys and come with comparable expense ratios, according to Morningstar, although they are less liquid than ETFs due to trading just once a day, after the close of the U.S. stock market.\u00a0<\/p>\n Muni bonds may be right for some investors<\/p>\n Some investors may want to consider municipal bonds<\/a>, or munis. While these may have more credit risk than Treasurys, the interest earned is typically free from federal tax as well as state taxes if you live in the state issuing the bond. This can be meaningful for investors in higher tax brackets.<\/p>\n “For higher-income investors, tax-free municipal bonds can be worth considering because the after-tax yield may be more appealing than the stated yield suggests,” said CFP Jay Spector, co-chief executive officer, founding partner and private wealth manager for EverVest Financial in Scottsdale, Arizona.<\/p>\n Be aware that despite the typical tax-exempt status for the interest earned, the formulas for Social Security<\/a> taxes and Medicare<\/a> premiums use your so-called modified adjusted gross income, or MAGI, which includes tax-exempt muni bond interest. <\/p>\n I bonds come with decent yield but less liquidity<\/p>\n The U.S. Treasury Department also issues savings bonds through Treasury Direct<\/a>. For example, Series I <\/a>bonds that are purchased May 1 through Oct. 31 of this year will pay 4.26%<\/a>. That interest rate is up from the 4.03% yield<\/a> that was in place through April 30. <\/p>\n I bond yields have two parts. There’s a fixed rate that stays the same after purchase and a variable rate that changes every six months based on your purchase date. The Treasury Department announces rate adjustments \u2014 in May and November \u2014 based on inflation.<\/p>\n However, when you purchase I bonds<\/a>, you can’t access the money for at least one year, and if you cash out before five years, you lose three months of interest.<\/p>\n![\"Building](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/06\/108262102-5ED3-REQ-EMERGENCY-SAVINGS-020526.jpg\")
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