Written

For

The

Australian

-

Rising

inflation

is

eroding

your

cash

savings:

Ways

to

fight

back

Did you know $100,000 sitting in your everyday transactional bank account is worth just $95,000 in real terms after only 12 months? That's the silent damage inflation is doing right now, and most Australians are sleepwalking through it.

Inflation has been on a wild ride. We hit 7.8 per cent during Covid, dropped to 1.9 per cent mid last year, and now we're creeping back towards 5 per cent. Yet most people do nothing about it beyond grumbling at the supermarket checkout.

A bakery owner once described inflation to me as boiling a frog. Drop the frog into hot water and it jumps out. Heat it slowly and it never notices. He'd raise the price of a custard tart by 5c every few months, and no one batted an eye. That's exactly how inflation eats your savings.

So what can you do? First, stop hoarding money in transactional accounts that pay zero interest. Keep enough for day-to-day expenses and move the rest into high-interest online accounts paying around 5 per cent. It's not glamorous, but at least you're not going backwards — though tax of up to 47 per cent on that interest still stings.

If you have a mortgage, your offset account is almost always a better home for spare cash than any savings account. You're effectively earning 6-7 per cent tax-free.

For those with stockbroking accounts, a cash ETF like Betashares AAA pays around 4.2 per cent annualised. Private credit is another option, but tread carefully — Blue Owl shares recently dropped 50 per cent and several ASX-listed private credit funds are trading at hefty discounts.

My final point is counterintuitive: sometimes the safest thing a retiree can do is take a bit more risk. A modest allocation to growth assets like an ASX 200 ETF can lift blended returns above inflation. Sitting entirely in cash guarantees you go backwards.

Inflation isn't disappearing. Lazy cash is a luxury you can't afford.