Inflation — the increase in the cost of goods and services over time — impacts your purchasing power. As prices rise, your dollars don’t buy as much as they used to.
According to the Bureau of Labor Statistics, consumer prices rose 3.4% in August, matching economists’ forecasts. Inflation climbed as higher energy prices tied to the Iran war continued to pressure the U.S. economy.
During periods of high inflation, it’s important to be strategic about where you park your cash. Choosing the right accounts and investments can help protect the value of your money and hedge against rising costs.
What is an inflation hedge?
An inflation hedge is an asset, account, or strategy that protects your money against rising prices by helping retain its value or increase in value over time. The point of an inflation hedge is to provide stability even during periods of economic downturns and market volatility.
6 best hedges against inflation
Inflation hedges are not completely risk-free, but they do offer the chance to protect your purchasing power and maintain the value of your money. Here’s a look at some of the best options.
1. Gold
Gold is often touted as a safe-haven asset because its value tends to rise even in times of uncertainty. It can also provide a hedge against inflation because there is a limited amount of this asset available — unlike the amount of cash in circulation (or government-issued currency), which can be increased if the government decides to print more.
2. High-yield bank accounts
Certain accounts, such as high-yield savings accounts (HYSAs) and certificates of deposit (CDs), can help you secure competitive interest rates that outpace inflation. In fact, it’s possible to find both HYSAs and CDs that currently earn as much as 4% APY.
Plus, as long as you choose a bank that’s federally insured, your deposits are protected against loss (up to $250,000 per depositor, per institution, per ownership category) in the event the bank fails.
3. Treasury Inflation-Protected Securities
Often referred to as “TIPS,” these government bonds are tied to the Consumer Price Index (CPI) and are backed by the full faith of the U.S. government. The principal increases with inflation and decreases with deflation, and interest is paid out every six months.
TIPS are offered in terms of five, 10, and 30 years. Investors are guaranteed to receive at least the full principal amount they originally invested when their bond matures, which can provide some form of financial security in the event of an economic downturn.
4. Series I bonds
Series I bonds are a type of U.S. savings bond designed specifically to protect your purchasing power from inflation.
Issued by the U.S. Department of the Treasury, I bonds earn a composite interest rate made up of two parts: a fixed rate that stays the same for the life of the bond, and a variable rate that adjusts every six months based on changes in the CPI.
When inflation rises, the variable portion increases, boosting your overall return; when inflation falls, the rate adjusts downward. Because the bond’s value is tied to inflation, it helps preserve the real (inflation-adjusted) value of your savings over time.
5. Real estate
When prices for everyday goods increase, the same often happens with property values and rents. This is why investing in real estate can be a smart way to hedge against inflation.
You don’t have to invest directly in a property, either. You can gain exposure to the real estate market by investing in real estate investment trusts (REITs). These are companies that own, operate, or finance income-producing properties. These trusts can be especially beneficial if housing inventory is low and direct ownership isn’t an option.
6. Commodities
Gold isn’t the only commodity that can serve as an inflation hedge. Oil, gas, agricultural products, and other metals can be worthwhile investments as inflation remains elevated.
Not only do they have intrinsic value because they are physical assets, but also commodities typically increase in value over the long-term because of the role they play in the production and distribution of everyday goods.
While both are backed by the U.S. government and tied to the Consumer Price Index (CPI), Series I Bonds are non-marketable savings bonds capped at $10,000 per person per year with a fixed 1-year lockup period. TIPS (Treasury Inflation-Protected Securities) can be bought in larger quantities on the secondary market and traded freely, but their principal value can fluctuate if sold before maturity.
No, as long as your deposit is held at a bank insured by the FDIC (or a credit union insured by the NCUA). Deposits are federally protected up to $250,000 per depositor, per institution, per ownership category against bank failures. However, if inflation outpaces your interest rate, your money may lose real purchasing power over time.
Gold is a physical asset with a finite supply that cannot be printed or created by central banks. Because of its scarcity and status as a traditional safe-haven asset, its value often holds steady or rises when fiat currencies lose purchasing power, protecting your baseline wealth despite offering no dividends or interest.
As inflation rises, real estate property values and rent prices typically increase accordingly. REITs allow investors to earn a share of the income produced through commercial or residential real estate holdings without having to buy physical property directly, providing both inflation-adjusted returns and dividend payouts.
Commodities like oil, metals, and agricultural products provide direct exposure to the physical goods driving inflation, but they carry high short-term price volatility. Because they are sensitive to geopolitical conflicts and global supply chain disruptions, they are generally used as a smaller tactical allocation rather than a primary long-term savings strategy.
Manoj Sharma is a Senior Writer on the banking team at Tax Assistant. He provides information on budgeting, bank accounts, the banking industry, and other related topics. Using original data and methodologies, he helps you identify the best financial institutions, accounts, and products tailored to your needs. Manoj holds a degree in Journalism and Political Science from Syracuse University. All articles are strictly reviewed and fact-checked by our panel of expert Chartered Accountants, including CA Devendra Saini, CA Nikhil Khunteta, and CA Ankit Goyal
