Inflation is 3% per year, what does it mean to place money in your savings account today with interest rates that are. 5%

Question

Kaden Cochran

Business

30 November, 05:25

Inflation is 3% per year, what does it mean to place money in your savings account today with interest rates that are. 5%

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Answers (1)

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Claire Lawrence · Answer 1

It means that your money will lose value as you will earn less interest than the grow in the inflation rate.

Explanation:

The inflation is the change on the prices of goods and services from a market basket as they become more expensive year by year. The Inflation rate of 3% suggest that the prices in the economy will increase a 3% at the end of the year while the interest on the money you have deposited in your bank account will gain only 0.5% at the end of the year.

Then the prices of good and services will growth faster than the growth in your savings. This situation makes that you lose purchase power with your money and therefore it will not be intelligent to keep the money in that savings account. The best thing to do is to search for another investment such a Term Deposit or Stocks.