Inflation Erosion Calculator
See how inflation silently eats your savings over 1, 5 and 10 years, and compare nominal value to real purchasing power.
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Inflation is the invisible tax on savings. Money sitting in a low-yield account loses purchasing power every year — silently, automatically. This calculator shows exactly how much a sum loses over 1, 5, and 10 years at different inflation rates, compares that to a range of interest rates, and reveals your real (inflation-adjusted) return. The result is often more sobering than people expect.
Example
$50,000 in savings at 2% interest, 4% inflation rate: After 1 year: nominal $51,000, real value $49,038 (−$962) After 5 years: nominal $55,204, real value $44,732 (−$5,268) After 10 years: nominal $60,950, real value $40,114 (−$9,886) Real return: −1.92%/year
Formulas
Nominal value after N years = Principal × (1 + interest rate)^N Real value after N years = Nominal value ÷ (1 + inflation rate)^N Real return rate = ((1 + interest) ÷ (1 + inflation)) − 1 (Fisher equation)
Why Inflation Erodes Savings
Inflation compounds just like interest — but in reverse for savers. At 4% inflation, $1 today is worth $0.96 next year, $0.82 in 5 years, and $0.68 in 10 years. Most savings accounts pay rates below inflation, meaning real wealth declines even as the nominal balance grows. The only protection is earning a return that exceeds inflation — through higher-yield accounts, bonds, or equities.
Frequently Asked Questions
What inflation rate should I use?
The US 10-year average CPI is around 2.5–3%. For conservative planning, use 3–4%. In high-inflation environments, use the current rate.
Does this mean I shouldn't keep savings in cash?
Keep 3–6 months of expenses in liquid savings for emergencies. Beyond that, money sitting idle loses real value over time.
What returns reliably beat inflation long-term?
Broad stock market index funds have historically returned 7% real over long periods. I bonds and TIPS are inflation-linked and guarantee positive real returns.
What is the 'real interest rate'?
The nominal interest rate minus the inflation rate. At 2% interest and 4% inflation, your real rate is approximately −2% — you're losing purchasing power.