Inflation erodes the purchasing power of your savings by reducing the value of money over time. When prices for goods and services increase, each unit of currency buys fewer goods and services. This means that the same amount of money will buy less in the future than it does today.

For example, if the inflation rate is 3% per year, a product that costs $100 today will cost $103 a year from now. This means that if your savings are not growing at least at the same rate as inflation, the real value of your savings is decreasing.

To put it into perspective, let's say you have $10,000 in a savings account with an annual interest rate of 1%, but the inflation rate is 2%. After a year, your savings will have grown to $10,100 due to the interest, but the cost of goods and services would have increased, so your purchasing power would have decreased.

In the long term, this can have a significant impact on your ability to afford the same standard of living. To combat the effects of inflation on savings, it's important to consider investments that offer returns that outpace inflation, such as stocks, real estate, or other assets that historically have provided higher returns than the inflation rate.

References:

• Investopedia: Inflation
• Federal Reserve Bank of St. Louis: How Does Inflation Affect Savers?
• The Balance: How Inflation Erodes Your Savings