Inflation can reduce the purchasing power of your savings even when the balance in your bank account never changes.
You might have €5,000 or €10,000 sitting in a current account. The number on your banking app remains exactly the same. But if the prices of groceries, transport, rent, energy and other essentials increase, that money gradually buys less.
That is the part of inflation many savers overlook.
The challenge is not simply finding an account that pays interest. It is understanding what your money earns after inflation, what risks you accept to earn that return, and when you might need access to your savings.
For professionals, immigrants and expats living in Portugal and elsewhere in Europe, these decisions can become more complicated when your savings, investments, tax residency and future spending plans involve different countries.
Here is how to understand the problem and make more informed decisions.
1. Why falling inflation does not mean falling prices
One of the most common misunderstandings about inflation is the belief that prices should return to their previous levels when inflation falls.
That is not what lower inflation means.
Inflation measures how quickly the general price level increases. When inflation falls, prices are generally still increasing, but at a slower rate.
Consider a simplified example.
If a basket of household essentials costs €100 and its price increases by 10%, it now costs €110.
If inflation subsequently falls to 2%, the basket does not automatically return to €100. Instead, it increases from €110 to approximately €112.20.
The rate of increase has slowed, but the higher price level remains.
This distinction matters because your savings must keep pace with the prices you actually face, not simply with the latest inflation headline.
Euro-area annual inflation reached 10.6% in October 2022, according to Eurostat. More recently, Eurostat reported annual inflation of 3.8% for September 2026, up from 3.2% in August.
The European Central Bank's September 2026 projections placed euro-area inflation at 3.0% for 2026, 2.5% for 2027 and 2.1% for 2028.
These figures describe different things: the September inflation rate is an observed annual change, while the ECB figures are projections for annual averages.
The important lesson is that lower inflation does not reverse previous price increases.
2. Where your euro savings actually sit
Your money may be held in several different places. Each option has a different purpose, return profile, liquidity and level of risk.
Current accounts
A current account is primarily designed for everyday transactions.
You use it to receive income, pay bills, transfer money and cover regular expenses. It is convenient because you can normally access the money quickly.
However, convenience does not necessarily mean a competitive return.
ECB statistics for September 2026 showed an average interest rate of approximately 0.30% on overnight household deposits across the euro area.
If your current account pays little or no interest while prices continue rising, your purchasing power can decline.
That does not mean you should eliminate your current-account balance. You need accessible money for ordinary expenses and unexpected payments.
The objective is to avoid holding substantially more immediately accessible cash than your circumstances require.
Savings accounts and term deposits
A savings account may pay interest while allowing you to retain access to your money, depending on its terms.
A term deposit generally requires you to leave your money with the bank for an agreed period in exchange for a stated interest rate.
ECB September 2026 statistics showed average rates of approximately:
- 1.26% for household deposits redeemable at up to three months' notice.
- 2.33% for new household deposits with an agreed maturity of up to one year.
These are euro-area averages, not offers available to every customer.
Before choosing an account, check the interest rate, minimum balance, promotional conditions, withdrawal restrictions, early-withdrawal penalties and tax treatment.
Eligible bank deposits are generally protected up to €100,000 per depositor per bank under the applicable EU deposit-guarantee framework, subject to its conditions.
This protection is an important difference between a qualifying bank deposit and an investment product.
Money market funds
Money market funds are investment funds that generally invest in short-term money-market instruments and other eligible assets.
They are designed to provide short-term cash-management exposure, but they are not bank savings accounts.
Their returns can change with short-term interest rates. They also carry investment risks, and their capital is not guaranteed by the ordinary bank deposit-guarantee scheme.
Before investing, check the fund's regulatory classification, investment policy, risk indicator, fees, redemption arrangements and tax treatment.
Do not assume that every fund or ETF described as cash-like is legally a money market fund.
Longer-term investments
If your investment horizon is several years or longer, diversified investments such as equities and bonds may offer opportunities for returns above inflation.
However, they also expose you to market movements and potential losses.
An investment portfolio that falls in value just before you need the money can create a serious problem.
That is why money needed for rent, bills, emergencies or a planned expense should not automatically be placed in volatile investments.
3. The number that matters: your real return
A positive interest rate does not necessarily mean your savings are increasing in purchasing power.
You need to compare the return on your savings with inflation.
Real return ≈ nominal return − inflation
For example, assume your savings account pays 1.5% annually while inflation is 2.5%.
Your approximate real return is:
1.5% − 2.5% = −1.0%
Your account balance is increasing, but your purchasing power is declining.
The more precise formula is:
Real return = [(1 + nominal return) ÷ (1 + inflation)] − 1
Using the same figures, the exact real return is approximately −0.98%, before tax and fees.
This is why looking only at the interest rate displayed in your banking app can give you an incomplete picture.
You should also consider taxation, account charges, fund management fees and any other costs that reduce what you retain.
4. What happens to €10,000 when inflation continues?
Consider an illustrative example.
You have €10,000 in an account earning no interest. Inflation averages 3% annually for five years.
Your nominal balance remains €10,000.
However, the future purchasing power of that balance, expressed in today's euros, is approximately:
| Period | Nominal balance | Purchasing power in today's euros |
|---|---|---|
| Starting point | €10,000 | €10,000 |
| After 1 year | €10,000 | €9,709 |
| After 2 years | €10,000 | €9,425 |
| After 3 years | €10,000 | €9,151 |
| After 4 years | €10,000 | €8,884 |
| After 5 years | €10,000 | €8,626 |
After five years, your €10,000 would have purchasing power equivalent to approximately €8,626 today.
The difference is approximately €1,374.
This is an illustration, not a prediction of future inflation. Actual inflation varies over time, and your personal spending pattern may differ from the average price index.
The important point is that an unchanged bank balance does not guarantee unchanged purchasing power.
5. Why immigrants and expats face additional considerations
If you live in one country, hold investments in another and eventually expect to spend money somewhere else, your financial decisions may involve several separate systems.
Currency exposure
Suppose your savings are held in euros but you expect to spend some of that money in another currency.
Changes in the exchange rate can affect how much your euros are worth when converted.
The same applies in reverse if you earn or save in another currency but expect to pay future expenses in euros.
Currency risk is separate from inflation. Both can affect purchasing power, but they are not the same thing.
Your choice of currency should reflect where you expect to spend the money and when you expect to need it.
Tax residency
Your investment tax obligations do not automatically depend on the country where your broker operates.
The country in which you are tax resident, the type of investment income, applicable national legislation and any relevant tax treaty can all matter.
Citizenship and tax residency are not interchangeable concepts.
If you move between countries, work across borders or maintain investments abroad, check your reporting obligations in the relevant jurisdictions.
Investment-account eligibility
Investment platforms and financial institutions may have different onboarding requirements.
These can include your country of residence, identity documentation, tax identification details, regulatory restrictions and the provider's own policies.
Do not assume that a platform available to someone living in one European country will necessarily accept customers resident in another.
Before transferring money, confirm that the provider accepts your country of residence and supports your tax and reporting circumstances.
6. How to protect your savings without taking unnecessary risks
There is no single account or investment product that is right for every situation.
A more sensible approach is to organise your money according to its purpose and the date you expect to use it.
Keep everyday money accessible
Maintain enough money in your current account to cover normal expenses and payments.
Convenience and liquidity have value. The objective is not to earn the highest possible return on every euro.
Protect your emergency fund
Your emergency fund should be accessible when something unexpected happens.
Consider suitable savings accounts or other low-risk cash-management options, while checking their access conditions and risks.
Do not put emergency money into volatile investments simply because inflation is refducing its purchasing power.
Match short-term savings to your time horizon
If you expect to use money within a few months, compare suitable savings accounts, term deposits and money market funds.
Look beyond the advertised return. Consider liquidity, fees, capital risk, deposit protection and tax treatment.
Invest for genuinely long-term goals
Money that you do not need for several years may be suitable for a diversified investment strategy, depending on your financial position and tolerance for risk.
Long-term investing offers opportunities, not guarantees.
Your portfolio should reflect your objectives, time horizon, financial capacity and ability to tolerate losses.
7. The real question is not simply whether inflation is high
Inflation is not something you can control personally.
However, you can examine how your savings are positioned.
You can check whether your current account pays interest, compare available savings rates, understand the risks of money market funds and build an investment plan for money you do not need immediately.
The important decision is to match each part of your savings to its purpose.
- Cash provides liquidity and stability of nominal value, but its purchasing power can decline.
- Deposits can provide interest and, when eligible, deposit protection, but rates and withdrawal conditions vary.
- Money market funds offer investment exposure to short-term instruments, but their capital is not guaranteed.
- Long-term investments can offer growth opportunities, but their value can fall.
Every option involves a trade-off.
The goal is not to eliminate every risk or chase the highest advertised rate. It is to understand which risk you are accepting and whether that risk makes sense for the money you are holding.
Your bank balance tells you how much money you have. Your real return tells you what that money may actually buy.
Final question
If you divided your savings into three categories — everyday cash, short-term savings and long-term investments — which category currently holds the largest share?
Is that allocation intentional, or has your money simply remained where it was deposited?
Share your thoughts in the comments.
Educational disclaimer: This article is for general educational purposes and is not personalised financial, investment or tax advice. Investment values can fall, and past performance does not guarantee future results. Tax treatment and financial-product eligibility depend on your individual circumstances and applicable rules.
Sources
- Eurostat — Annual inflation up to 10.6% in the euro area, October 2022
- Eurostat — Annual inflation up to 3.8% in the euro area, September 2026
- European Central Bank — September 2026 staff macroeconomic projections
- European Central Bank — Key ECB interest rates
- European Central Bank — Euro area bank interest rate statistics, September 2026
- European Commission — Deposit guarantee schemes
- European Commission — EU individuals' rights under tax law
- European Central Bank — What is inflation?
Income to Assets HQ — Practical financial education for building long-term wealth.
0 Comments