Keeping money in a bank account offers security and convenient access, but low interest rates can gradually reduce its purchasing power when inflation rises faster than savings returns.

Across Europe, substantial household deposits remain in accounts that provide limited earnings, prompting questions about how people can protect their money while maintaining financial stability.

How Inflation Affects Savings

Inflation measures how quickly the prices of goods and services increase. When savings earn less interest than the inflation rate, their purchasing power declines even if the account balance grows. The analysis reported average deposit returns of 2.76%, compared with inflation of 2.94% across the markets studied. Assuming both rates remain unchanged, savings would lose a small amount of purchasing power over time, before taxes and account charges.

For example, €10,000 earning 2.76% would grow to €10,276 after one year. If prices increased by 2.94%, that balance would buy slightly less than it could at the beginning of the year. Comparing deposit rates and reviewing account terms can help savers understand whether their money is keeping pace with rising living costs.

Expert Insight

Rolandas Juteika, Revolut’s head of wealth and trading, has highlighted perceived risk and limited financial knowledge as barriers to investing. He said: “Forced enrolment doesn't tackle the root causes of inertia: perceived risk (29%) and a lack of knowledge (27%).”

Why Many People Keep Savings in Cash

The analysis found that roughly two-thirds of respondents had never switched banks to obtain a better interest rate. Familiarity, convenience and uncertainty about alternative options may discourage people from changing providers.

Cash savings nevertheless serve important purposes. They can cover emergencies, upcoming expenses and short-term financial commitments without exposing money to daily market fluctuations. Eligible deposits may also benefit from applicable deposit-guarantee protection.

Problems can arise when all savings remain in low-return accounts, including money intended for goals many years away. Comparing interest rates, fees and withdrawal conditions can help households decide whether their existing accounts remain suitable.

Cash Savings Versus Long-Term Investments

The analysis estimated that households could forgo €638 annually for every €10,000 held in cash, using a 9.06% annualised return for an MSCI Europe exchange-traded fund over the preceding decade as a comparison. This estimate represents a potential opportunity cost, not a guaranteed investment gain. Shares and funds can lose value, and past performance does not predict future returns. Actual outcomes also depend on fees, taxes, timing and market conditions.

Money needed in the near future may be better suited to accessible savings. Funds intended for longer-term goals may be considered for diversified investments, depending on financial circumstances and willingness to accept risk. A balanced approach considers emergency reserves, debt obligations, investment time horizons and the possibility of losses rather than pursuing the highest potential return alone.

Low-yield deposits can lose purchasing power when inflation exceeds interest earnings. Research suggests that substantial household savings remain in accounts with limited returns, partly because of inertia and uncertainty about investing.

However, cash remains essential for financial security and immediate needs. The objective is not to invest every euro, but to match each financial product with its intended purpose. Comparing deposit rates, understanding inflation and learning about investment risks can help households make better-informed decisions.