What inflation does to savings

Inflation is the rise in prices over time. It means the same amount of money buys less each year, even when the number in your account never changes.

Buying power

If prices rise 20% in a year, ₦100,000 at the end of the year buys what about ₦83,000 bought at the start. The balance looks the same, but a sixth of its buying power is gone.

Small rates add up. At 3% a year, prices double in about 24 years. At 25% a year, they double in about 3 years.

Real returns

What matters is not the interest rate on your savings but that rate after inflation, called the real return.

• In Nigeria in 2024, consumer prices rose about 33% while typical bank deposits paid around 11%. That is a real return of roughly minus 17%: the savings grew, but they bought less.
• In many countries, savings accounts paid less than inflation for long stretches after 2008.

A negative real return means you are slowly getting poorer, even while earning interest.

Where gold fits

Gold pays no interest, so its real return depends only on whether its price rises faster than inflation. Over long periods it has often kept up with or beaten inflation, but not over every period and not in every currency.

The chart below shows gold against savings in your currency, measured in buying power: what the money would buy, not just the number on the statement.