Two percent inflation sounds harmless. Over twenty years it almost halves the purchasing power of a savings book. Here is how inflation works, which assets offset it and what not to do with cash.
In short
- At two percent inflation money loses half its purchasing power in 35 years, at four percent already in 18.
- What matters is the real rate: interest minus inflation. Savings accounts sit just above it in 2026, current accounts far below.
- Real assets such as stocks, property and gold offset inflation over the long term, not with any guarantee in the short term.
- Cash at home loses twice: purchasing power and interest.
The rule of 70
Divide 70 by the inflation rate and you get the years in which prices double. At two percent that is 35 years, at three percent 23, at five percent 14. The other way round: whoever keeps €10,000 under the mattress can buy with it in 23 years at three percent inflation only what costs €5,000 today. The figure on the note stays, the value behind it shrinks.
Real rate instead of nominal rate
What counts is the interest after deducting inflation. If a savings account pays 2.5 percent and inflation runs at 2.2 percent, your purchasing power grows by 0.3 percent. The current account at zero percent loses the full 2.2 percent. A savings book at 0.5 percent loses 1.7 percent. On €20,000 that is €340 of purchasing power a year that nobody debits and that is missing all the same.
What offsets inflation
Companies pass rising prices on, so revenues and profits grow nominally with inflation. Broadly diversified stocks have returned around five percent above inflation over long periods. Property follows building costs and rents, gold has held its purchasing power over centuries, if with violent swings. Bonds with a fixed coupon lose, unless they are inflation-linked. In the short term all of it can fall; the offset works over years, not months.
The order
The emergency fund stays in the savings account because it has to be available and the small real loss is the price of safety. Everything beyond that belongs in real assets, distributed by time horizon: what you need within five years stays interest-bearing and safe. What can lie longer may fluctuate.
The mistake with cash
Cash at home is doubly expensive: it earns no interest and loses purchasing power. Add the risk of theft and fire, which contents insurance usually covers only up to €1,000 to €2,000. Whoever wants a cash reserve for card and ATM outages keeps €200 to €500. More is habit, not provision.
Using inflation in everyday life
Fixed contracts with long terms get cheaper in times of inflation: a loan at three percent interest with three percent inflation costs nothing in real terms. A fixed rent without an indexation clause wins every year. Whoever negotiates a salary demands at least the inflation adjustment, otherwise it is a pay cut.
Try it yourself
ETF Savings Plan CalculatorContribution, return, term: how your savings plan develops over the years, with a chart and compound interest.Savings Interest CalculatorBalance, rate, term and tax: what your instant-access savings bring after German withholding tax and the tax-free allowance.Frequently asked questions
How high is inflation in 2026?
The Federal Statistical Office reports values around two percent for 2026, after the outliers of 2022 and 2023. The ECB’s target is two percent.
Does gold protect reliably against inflation?
Over decades yes, over single years no. Gold can fall when inflation rises if interest rates rise at the same time.
Are inflation-linked bonds sensible?
As an addition to the safe part, yes. They pay a small real rate plus the inflation adjustment and are issued by the German government.
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