Leaving money in the bank? Here’s what inflation is doing to it

You’ve worked hard to save your money, and now it's stored in a deposit account. While it seems like a safe choice inflation erodes the value of your money over time. Inflation is like a slow leak in your wallet. While your balance might stay the same, what you can buy with it slowly shrinks. Let’s take a look at how inflation works, why it matters, and how you can make your money work harder for you.

What is inflation?

The average increase in prices is known as the inflation rate. For example, if inflation is 4% per year, something that costs €100 today will cost €104 a year from now.

The impact of inflation

If your money is sitting in a non-interest-earning account, or stored in cash hidden in the house the amout will stay the same, but it's value will shrink as the prices continue to rise. Here is an example:

It means, that from your €1,000 you'll only be able to buy something that worth €456 today.

It's important to keep some cash or money that's immediately available for emergencies, but holding large amounts for long periods is not advised.

What to do instead?

To retain - or even increase - the buying power of your money you can look for multiple options:

• Open a savings account: High-yield savings accounts may be hard to find in today’s low interest environment, but even lower yield accounts can be a better option, especially as a short-term solution with minimal risk.
• Invest: Stocks and shares generally provide better returns over the medium to long term. You might want to consider an investment fund that combines several asset classes to give your funds a chance to grow.
• Diversify: Spread your money across assets depending on the size of your funds, goals and risk tolerance.