Inflation refers to the general rise in prices over time. While a moderate level of inflation is normal in a growing economy, it can erode your purchasing power—and impact your savings significantly if left unaddressed.
The real impact of inflation:
If your savings earn a return lower than the inflation rate, you’re effectively losing money. For example, if inflation is at 6% and your savings account gives 3.5%, your purchasing power declines by 2.5% annually.
How inflation affects different savings tools:
- Savings accounts: Low returns; lose value over time.
- Fixed deposits: Slightly better, but still often below inflation.
- Cash holdings: Highly vulnerable; earns nothing, loses value fastest.
How to combat inflation:
- Invest in inflation-beating assets
Stock market investments and mutual funds historically outperform inflation in the long run. - Use SIPs for consistent growth
SIPs in equity funds can help grow your money at rates higher than inflation over the long term. - Diversify your portfolio
Include real estate, gold, or inflation-indexed bonds for balance. - Review your returns annually
Ensure your investment returns exceed the current inflation rate. - Avoid letting money sit idle
Put your idle cash into high-interest digital FDs, liquid mutual funds, or even short-term debt funds.
In short, proactive investing—not just saving—is essential to protect and grow your wealth in an inflationary environment.