Inflation occurs when there is a rise in products in an economy. As the prices of goods and services rise in a country, the cost of living also increases.
Inflation causes a country’s currency to reduce in value, that is, the purchasing power is very low and the more money people have, the less they can buy with it. At this stage, the currency is useless as it can only purchase few goods in the market.
For someone looking forward to saving some money in the bank for some future endeavors or just have some money kept aside, inflation of any level will affect such a dream. Most especially if it is saved for a long-term business prospect or to send a child to school.
This requires someone to get expert advice from financial gurus or wealth managers. One can also find reliable banks that have such specialists in their employment that can help put you through the best ways to save your money.
Let’s look at how Inflation affects your savings
1. You Lose Purchasing Power
Not you, but the money in your savings account. That is because every year inflation occurs, going up and down, and affecting every single currency in the country.
If you save 1,000 dollars every month for the next five years, the number of goods or services you will purchase at the end of the five years will not be what you expect it to be. You have lost no money but just the power of the money to buy as much as it should because of rising prices.
2. It Affects Your Retirement Savings Plan
Retirees are the most hit by inflation, especially those who have a retirement savings account. A worker who keeps aside a part of his income in a savings retirement account for when he is old and retired will only have the amount of money he has saved with whatever interest rate the bank or financial institution has promised, but not the buying power of the total amount of money in the account at the end.
Let’s say the person saved $100,000 within 20 years and gets $10,000 as interest from the bank, he/she will be $10,000 richer but unable to buy what that amount would have bought 20 years before.
3. Interest Rates are Higher
When inflation happens, banks and other financial institutions will increase their interest rates to attract people to save more with them. It’s a good idea to save more, but not a good idea to save your money only in the bank.
Inflation affects every part of an economy, and both the rich and poor, though the rich know how to manipulate the economy and the forces within it in ways that will favor them. They seek lucrative and steady ways to create more income for themselves to balance their savings and spending, curtailing the effects of any level of inflation.