Why would your savings account “lose value” if the rate of return you receive is lower than the rate of inflation?

Mathematics

1 answer:

DerKrebs [107]3 years ago

3 0

Answer:

Inflation is the continuing reduction of the purchasing power or price level rise in a given time period.

Therefore, keeping money in a savings account that gives an interest rate that is lower than the inflation rate, in a period of high inflation will result in a reduction of the purchasing power of the amount of money plus interest in the savings account.

If the interest rate is 10%, the amount, A, in the account after a given time will be 1.1A

If the inflation rate is 15%, the value of the goods sold initially at A, will become 1.15A after the given period and the amount in the account will no longer be able to purchase the goods it was initially able to purchase, or the amount in the savings account will lose value

Step-by-step explanation:

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