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Do your savings beat inflation?
Your account pays interest… but does it really make you richer?
real return ≈ nominal rate − inflationProblem / motivation
Your Livret A — France's regulated tax-free savings account — advertises “1.5% a year”. Good news… really? It all depends on a figure people forget: inflation.
Every year, prices rise. If your savings earn 3% while everything costs 4% more, your money buys LESS than before: you have grown poorer without noticing, despite the interest paid. So what counts is not the advertised rate — the NOMINAL rate — but what is left of it once inflation is taken out: the REAL return, the one that says whether your purchasing power is gaining or losing ground.
This course gives you the two things usually missing: the RULE (with its exact version, not just the shortcut), and the ANSWER for your real life — today's Livret A rate against today's inflation, the painful episode of 2022-2023, and what ten years of erosion would do to your savings. By the end you will be able to answer the question in the title for YOUR savings — and to know where to check both figures each year.
Assumptions
In your view, which assumptions are needed for this model to hold? Jot down your ideas — no lead is wrong, this is your worksheet.
Your worksheet is still empty. Go for it: propose at least one idea.
0 idea(s) proposedFormalization
Put the race into figures. In one year, your savings are multiplied by 1.03 (+3%); prices, by 1.04 (+4%) — the % ↔ coefficient bridge from the course “GDP growth”. Your purchasing power is therefore multiplied by the RATIO of the two: 1.03 ÷ 1.04 = 0.9904, that is −0.96%. This is the EXACT rule, the one promised by the courses “Return and risk” and “The policy rate and transmission”: the real return DIVIDES the coefficients — your savings against prices, to the cent.
For small rates, the division shortens into a subtraction: real return ≈ nominal rate − inflation = 3 − 4 = −1%, against −0.96% exactly. Four hundredths apart: the shortcut is reliable as long as rates stay modest — hence the “≈” in the header, never an “=”. (At 8% inflation the gap becomes visible: the simulator always shows both.)
One year at −0.96% is nothing. But the erosion applies EVERY year to the level already eaten into: × 0.9904 ten times running = × 0.908 — almost 10% of purchasing power gone in ten years, without a single euro withdrawn. On the 2022 regime (a real return around −3%), the same decade would cost more than a quarter. That is why the question in the title is posed in YEARS, not in percentages: the simulator has a “duration” slider so you can see it with your own eyes.
So, do your savings beat inflation? Mid-2026: the Livret A pays 1.5% (since February 2026; 1.7% announced for 1 August), against inflation of about 1.8% year on year in June (INSEE) — a slightly NEGATIVE real return, at about −0.3% — which, at that pace, means about −3% of purchasing power over ten years. Nothing like 2022-2023 (2% then 3% against 5.2% then 4.9%: around −3 points in real terms, French savings melting before their owners' eyes), but the honest answer remains: not quite. Both figures move — the rate at each revision in February and August, inflation every month on INSEE's website. Click each term:
Solving / calculation
Let's take the toy from the opening — €1,000 invested at 3%, inflation at 4% — and do the accounts properly: the exact version first, the shortcut next, then ten years. Handle it afterwards.
- Your balance: it does rise, genuinely
1,000 × 1.03€1,030 in the bank - Prices: the €1,000 basket now costs
1,000 × 1.04€1,040 - Your EXACT purchasing power: the balance, converted into today's prices (economists say “deflated”)
1,030 ÷ 1.04 = 990.38real loss: €9.62 - The shortcut recovers almost all of it
(3 − 4)% of €1,000≈ −€10 — accurate to within 40 cents - Ten years at that pace (3rd beat)
1,000 × (1.03 ÷ 1.04)¹⁰≈ €908 of purchasing power: −9.2%
On paper you will always have MORE euros: 1,030, then 1,061, then… The balance never falls — which is what makes the erosion painless. But in purchasing power, this account loses the equivalent of €9.62 in the first year, and close to a hundred over ten. The shortcut (−1%) was enough to see it coming; the exact version puts a figure on it to the cent. Set the sliders to YOUR situation — the starting values are today's Livret A.
purchasing power = capital × ((1 + rate) ÷ (1 + inflation))ⁿThe sliders start on France in mid-2026: Livret A 1.5%, inflation 1.8%. Set your capital, the rates and above all the DURATION: purchasing power is computed exactly, with the shortcut alongside.
Economic interpretation
The advertised rate is reassuring, but two things decide in your place: inflation… and the time you let run.
Collecting interest is not enough: if inflation outstrips it, your purchasing power falls while your balance rises — which is exactly what makes the trap painless. Millions of savers lived through it in 2022-2023 without withdrawing a euro: the Livret A paid 2% then 3%, while prices ran at 5.2% then 4.9%.
The erosion compounds (3rd beat): −1% real for ten years is −9.6% — and −3% for ten years, a quarter of your purchasing power. But compounding works the other way too: a POSITIVE real return, however modest, snowballs. So the question is never “what rate this year?” but “which sign, for how many years?”.
The Livret A is TAX-EXEMPT: its advertised rate is net. An ordinary bank savings account, by contrast, bears the flat-rate 30% levy on interest: an advertised 3% becomes 2.1% net — BEFORE inflation is taken out. Always compare NET rates; exercise 8 has you do the complete computation.
Your rate did not fall from the sky: the Livret A is revised every February and every August, on a formula combining inflation and interbank rates — themselves hanging on the policy rate (course “The policy rate and transmission”). Inflation, for its part, can be read every month on INSEE's website. Two minutes a year are enough to redo this course's computation — that is its whole promise. (And to beat inflation DURABLY, you often have to accept risk: course “Return and risk”.)
Limits / critiques
Exercises
Your account earns 4% and inflation is 2.5%. What is your real return (shortcut, in %)?
True or false: an account earning 3% always gains you purchasing power.
EXACT version (1st beat): rate 6%, inflation 4%. What exact real return — (1.06 ÷ 1.04 − 1), in %?
France 2023: Livret A at 3%, inflation at 4.9%. What real return (shortcut, in %)?
Account at 2%, inflation at 3.5%. Your savings…
Inflation is 2%. What minimum nominal rate must your savings earn NOT to lose purchasing power (in %)?
Your savings suffer a real return of −2% a year for 10 years. What total loss of purchasing power?
A bank savings account advertises 3% gross, taxed at 30% on the interest; inflation is 2%. What net real return (shortcut, in %)?