how does inflation effect your savings?

Keeping your money in a savings account may sound like a good idea, until the rise of inflation takes place and gives you less purchasing power.

For example, if you put £100 in a bank account that pays 1% interest, you will have £101 after 12 months. However, 2% inflation means that things that cost £100 when you put your money in your account will cost £102 a year later, indicating that your money has lost purchasing power.

If the inflation rate exceeds the interest you are earning on a savings or checking account, then you are losing money.

With a hypothetical 2% inflation, you will need to save more to ensure that your savings can be sufficient to help you achieve your financial goal.

If your goal is to make money on your investment, it is best to invest in order to beat inflation, which implies that the interest or profit you make will be larger than the inflation rate.

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