The Impact of Inflation on Your Savings & Investments

The impact of inflation on savings and investments

Euro saved is a Euro earned! So the saying goes, but thanks to inflation the value of that Euro saved could be a lot less than when you earned it, over time.  The obvious impact of inflation on your savings is that your purchasing power is eroding. This means that if you stash €100 under the mattress today and inflation is 2% per year when you come back a year from now your €100 will buy 2% less stuff. Another way of looking at it, you will need €102 to buy the same stuff a year later. Leave it for 10 years and the cost is €121.90 when you factor in the effects of compounding on your €100.


So, what do I mean by inflation? Well, it’s the rate at which the general level of prices for goods and services is rising. Right now, having money on deposit is no better than keeping it under the mattress. It’s not working for you, it’s not even beating inflation, and not beating inflation every year means that the real value of your money is falling year on year. This means you’re losing money! The way to improve your spending power is to consider other investment alternatives.  Even relatively medium-risk investment strategies will look to beat inflation by a few percent over time, thereby increasing your spending power.


Inflation in Ireland has been very low in recent years, coming in at -0.2% by the end of 2020 ( while Global inflation for 2020 was 3.18%.


How can you maintain your purchasing power?

To help maintain your purchasing power over time your savings need to grow as quickly as prices are rising. Combine this with the threat of negative interest rates currently being charged on some commercial accounts and extended to some personal accounts, especially those holding significant deposits, even a relatively modest 0.5pc charge placed on deposits would mean paying substantial fees on €100,000. It’s wise to consider investing your money rather than saving it if you’re planning on holding on to it for 5 years or more.


Looking for higher investment returns?

Higher returns can mean higher risk, so have a clear objective in mind.  Be comfortable with the risk you’re taking on and the timeframe you’re investing for. Volatility is the price of admission, it’s inevitable. Think about how you would react to temporary market declines? When it comes to investing, the range of options is extensive, so it’s advisable to speak to a financial adviser who has access to the market, and not just one provider.


Save or Invest?

Keeping enough cash in a savings account for any foreseeable or unforeseeable costs is always a good idea. Build up your emergency fund each month so that you have enough to see you through for 3 to 6 months. Any cash you have in excess of your emergency fund and/or a 5-year savings plan needs to be working for you through long-term investments.


Before you consider saving or investing there are a few questions you need to ask yourself that will determine your next step:

  • What is your timeframe – Short, Medium, Long?
  • What returns are you looking for on your savings/investments?
  • How would you react to a temporary decline?

The quickest way to double your money is to fold it in half and put it back in your pocket 



You need to consider the tax implications on your investments too. No matter what type of saving or investment account you have your money in chances are you’ll be liable for some level of tax on any gains made on your investment – Dirt; Stamp Duty; Capital Gains Tax; Exit Tax. Tax is likely to be your biggest expense. Here at O’Leary Financial Planning, we’ll help you control it.


As we start to emerge from the pandemic make sure your investment portfolio includes funds that can benefit from or be resilient to any increase in inflation.  Always, always get professional financial advice. Your circumstances are individual to you and so is your saving/investment strategy. For more information on investing or to get your questions answered talk to one of our financial planners. We have access to a range of investment options to suit your requirements.

Tax Treatments on Investments 


Warning: The value of your investment may go down as well as up.
Warning: These funds may be affected by changes in currency exchange rates.
Warning: If you invest in a product you may lose some or all of the money you invest.