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For a bunch of reasons, this seems a sensible time to keep cash stashed in safe harbours like savings accounts and term deposits.

Stocks have been surging for a while and could be due for a pullback that melts away money you’d invest right now. The pandemic is easing, but experience suggests you shouldn’t completely discount more negative surprises that could hurt your household financial stability.

Unfortunately, there’s a suddenly strong counter-argument to having money pile up in savings. It’s called inflation, an economic phenomenon that hasn’t been a force to reckon with in Canada for decades. Now, it’s b-a-a-ck. The year-over-year inflation rate in May was the highest in 10 years at 3.6 per cent.

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The very best rates on high interest savings accounts ranged from 1 to 1.55 per cent as of mid-June. On an after-inflation basis – your real return, in other words – you’re losing 2.05 to 2.6 per cent. One-year guaranteed investment certificate rates these days top out around 1.5 per cent, which again mean a loss after inflation.

These negative real returns are a sudden shift for savers. Until recently, inflation was so tame that even modest returns from savings kept you at least even with changes in the cost of living. Now, inflation is on the move thanks to surges in demand for certain goods coupled with kinks in the industrial supply chain.

Normally, inflation drives interest rates higher and, in turn, the yield on savings products. But the Bank of Canada wants to keep rates low right now to encourage borrowing that will help the economy recover from the pandemic. The net result is inflation without higher rates for savings, and thus negative real returns for savers and conservative investors.

If you have a strong reason for holding cash, don’t waver. There are plenty of life circumstances where it’s more important to have ready risk-free funds at hand than to worry about negative real returns. Examples: a Plan B fund for emergencies, a down payment fund for a house, a wedding fund and savings for a vacation coming up in the year ahead.

But if you’ve got more immediate plans for your savings, maybe it’s time to start dipping in. Economists say people have been able to save an estimated $100-billion to $200-billion as a result of spending curtailed by pandemic lockdowns. Dismal interest rates combined with rising inflation suggest it’s go time for some of this money.

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