Blog Invest How to Protect The Value Of Your Savings Against Inflation and Wage Stagnation

How to Protect The Value Of Your Savings Against Inflation and Wage Stagnation

date May 22, 2020 time 3 min read 788 views

We find ourselves in unprecedented times. It’s hard to predict what the financial fallout will be from it all. If you have a nest egg or are fortunate enough to be employed and able to save some money, you need to make sure it won’t lose value over time.

You’ve got two things working against you: inflation and wage stagnation. Both impact your buying power and unless you do something to counteract their effects, your savings could be worth a lot less in the future than they are now.

Mind the (wage) gap

The median salary in the US is approximately $48,500. That’s up from what it was in 2000, where your average American took home just over $42,000. But this doesn’t include the effect of inflation. To retain the same buying power in 2020, you’d need just over $62,500 — or $17,000 above the median salary in 2000.

One of the downsides of being a consumer-based economy, like the US, is that wage growth is usually accompanied by an increase in the price of products, rendering it not much of a pay rise at all.

Traditional investments aren’t cutting it

So how can you make up this shortfall?

Well, a savings account isn’t the answer.

To quote one of my favorite shows, Futurama, “A bank is a place where people put money that isn’t properly invested.”

Considering that comes from a comedy show set 1,000 years into the future, there’s a lot of truth to it. A savings account pays a miserly 0.06% on average. With inflation of 1.9% to 2.3% over the last four years, it’s far from a good option.

So how else can you make your money work for you?

Well, it’s not brilliant news for CDs (certificate of deposit) either.

If you’re new to CDs, these are federally-insured accounts that last for a fixed term — typically between a month and several years. They’re low risk, but low yield.

As of May 2020, the best you can get is 1.6% — and that’s for a five-year term and a required minimum deposit of $5,000. Yikes. That’s still less than the rate of inflation. Why commit your savings for such a long time if you won’t even tread water?

What about alternative investments?

Well, you might consider peer-to-peer (P2P) lending.

I know what you’re thinking: isn’t P2P lending risky?

It can be. In fact, a number of platforms have reduced interest rates they pay out to investors. UK-based company Ratesetter, for example, recently announced that they were halving all of their rates. Those returns are higher than inflation, but is an additional 0.4–1% worth it without anything backing your investment?

Some lenders in the US advertise huge gains for lenders, which can make the risk almost seem worth it. Peerform, for example, offers 5% to 26% — but when you look a little deeper, things start to look ugly.

If you want a loan from Peerform, you need a minimum credit score of 600. That’s worse than just over 80% of all Americans. Worse, Peerform and other large companies like Lending Club are unsecured — borrowers don’t put up collateral for their loans.

But don’t give up on P2P lending just yet…

At MyConstant, we don’t need credit scoring. Why? Because every borrower must put up 150% of the loan amount in collateral to secure the loan. We chose cryptocurrency as collateral as it’s a liquid asset readily sold should borrowers default or the value of the collateral fall too much during their term.

Better yet, you can earn up to 7% APR on a fixed-term loan (1–9 months), or 4% APY in our anytime withdrawal account, instant access. This is a P2P lending pool, so you’re not lending directly to one person (which is why you can withdraw anytime), but your interest is compounded and paid every second, and there’s no minimum balance required.

Saving accounts aren’t what they used to be. Gone are the days when you’d earn 5% with the full weight of the FDIC behind you. Now, you’ve got to work harder to fight the effects of inflationary devaluation and wage stagnation. If you’re serious about growing your money, we can help — we do P2P lending the right way: overcollateralized and backed by liquid assets. Give us a try and we’ll even give you $10 when you make your first deposit.

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Ian Haponiev

Ian Haponiev

In-house Journalist

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