What the latest inflation numbers mean for your savings

While inflation appears to be cooling somewhat, it still remains high. According to the Federal Reserve's latest Consumer Price Index report, consumer prices have risen at an annual rate of 4.9% — a far cry from the Fed's 2% target rate.

Inflation has plenty of negative economic effects. It raises the cost of living, lowers the dollar's purchasing power and makes borrowing money more expensive. However, it can be great news for savers.

Smart savers are always on the lookout for the best return on their deposits, and interest rates play a crucial role in determining how much they earn. When inflation is high, the Fed raises interest rates in an attempt to slow down the economy. This, in turn, raises savings rates.

See how much you could be earning by checking out current savings rates here.

What the latest inflation numbers mean for your savings

When the Fed increases interest rates — as it does during periods of high inflation — it costs more for banks to lend out money. As a result, they raise their savings rates to attract more customers, whose deposits can help improve the bank's cash flow. So, when interest rates are high, savers stand to earn more interest on their deposits.

It's critical to take advantage of inflation-related interest rate hikes by opening an account that earns the best returns. A high-yield savings account offers yields considerably higher than regular savings accounts — think 4.5% (or higher) versus 0.39%. On a balance of $5,000, that's a difference of $225 (or more) in interest per year versus $19.50. Compound that over several years, and the difference really starts to add up.

Whether you're building an emergency fund or putting aside money for a particular goal, a high-yield savings account helps your money grow faster — especially in an inflationary environment.

With a high-yield account, "Your savings will not be sitting on the sidelines," says Kristen Beckstead, CFP, ChFC, vice president and financial planner at First Horizon Advisors. "It will be in the game producing a real return while still safe and accessible."

Explore current savings rates online today.

Other benefits of high-yield savings accounts

Whatever the economy is doing, high-yield savings accounts are worth opening. In addition to high yields, they offer:

• Protection: If you deposit money with an FDIC-insured bank or NCUA-insured credit union, your savings are safe up to $250,000 per account per institution. If the bank fails, your money is protected by the federal government. In addition, while your earnings may go down if interest rates drop, your initial balance will remain the same (assuming you haven't made any withdrawals).
• Easy access to your money: High-yield savings accounts offer the flexibility to access your funds whenever you need them, penalty-free (as long as you mind any monthly withdrawal limits). Contrast this to deposit products like CDs, which lock up your funds for a predetermined period.
• Low or no fees: Many high-yield savings accounts are provided by online banks, which have lower overhead than traditional banks with physical locations. This allows them to offer low or no minimum balance or deposit requirements (which means low or no fees for you to worry about).

The bottom line

When interest rates rise to combat inflation, savings account rates rise, too. That means you can earn more on your savings than you might at other times. And by opening a high-yield savings account, you can capitalize on these higher rates. To find the best account for you, take the time to compare your options, keeping these important considerations in mind.

Inflation is rarely good news for consumers, so why not take advantage of one of its few perks by maximizing your savings?