The inflation effect on the value of savings

Inflation devalues the purchasing power of your money. How will inflation impact the value of your savings, particularly if you’re still being highly conservative and holding a large portion of your portfolio in cash waiting for the economy to ‘get back on track’?

Now and then

A good place to start is by looking back at how inflation has affected the cost of living in Australia. The Reserve Bank of Australia (RBA) has a handy calculator on its website ( that tells us how the cost of a ‘basket of goods and services’ has changed over a chosen timeframe. It’s a great eye-opener.

How much?!

According to the RBA inflation calculator, one hundred dollars worth of goods purchased in 1980 cost $440 in 2020! One hundred dollars spent in 2000 cost $162.43 in 2020. That may not seem much BUT when you realise that the increase over that time was 62.4% you might be a bit more concerned. Over the 20 years, this averages out to just 2.5% per year, which is within the RBA’s target range. But, how could this impact your savings in the current economy?

During periods of high inflation, which we are currently experiencing, the purchasing power of money held in cash reduces faster. With most term deposits currently earning less than 3% pa interest, apply the current inflation rate of just over 6% to this and you’ll realise that these accounts are not earning any real returns; in fact, most are losing value. This is why it’s so important to be vigilant about how inflation may affect your super in the lead-up to and during your retirement.

Every investment must meet your own individual needs, now and in the future. If you would like to learn more about how to manage the impact of inflation on your savings or your retirement, speak to us. We may not have a crystal ball, but we do have a good understanding of how all this works!

The purpose of this website is to provide general information only and the contents of this website do not purport to provide personal financial advice. Denaro Wealth strongly recommends that investors consult a financial adviser prior to making any investment decision. The contents of the Denaro Wealth website does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this website is given in good faith and is believed to be accurate at the time of compilation.

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