Are your savings losing you money?
Tips to protect your money from inflation

The hidden cost of inflation

Most of us have experienced an increase in on the cost of groceries, coffee, and petrol compared to past years. This isn't just happening in Ireland - it’s worldwide, reflecting a widespread increase in the cost of living. And it affects your savings too because an increase in the cost of living can gradually reduce the value of the interest your savings earn. 

Although saving in a bank account keeps your money safe, if the interest your account earns doesn’t keep up with increasing prices, you might lose purchasing power.

In this blog, we’ll explore why inflation happens, how it affects your savings, and above all, what you can do to protect your money to better meet your financial goals.
 

What is inflation and why does it happen? 

Inflation is the rate at which the prices of goods and services increase over time. A little inflation is normal and even healthy for a growing economy. But when inflation rises faster than expected, it can affect your finances. 
 

The main causes of inflation 

• Increased demand: Sometimes, demand for goods and services surges - think of the post-pandemic rush for travel, dining, and shopping. When more people want to buy something and supply can’t keep up, prices go up. This is known as ‘demand-pull’ inflation.  

• Rising costs: Inflation can also be driven by higher costs for businesses. If the price of raw materials, energy, or wages increases, companies often pass those costs on to consumers. This is called ‘cost-push’ inflation. 

• A bit of both: Often, inflation results from both increased demand and rising costs. For example, after the pandemic, energy prices increased significantly due to higher demand and restricted supply, especially in Europe. 

Central banks, like the European Central Bank (ECB), aim to keep inflation around 2% per year—a level considered stable and healthy. When inflation rises above this target, central banks may increase interest rates to cool off demand and bring prices back under control. 
 

Why is inflation bad for savings? 

If you’re saving money in a standard savings account, you might assume your money is safe and growing. However, if the interest rate on your account is lower than the inflation rate, your savings are actually losing value in real terms. 

For example, consider a savings account with a balance of €10,000 earning an annual interest rate of 2%. If the inflation rate is 5%, the real value of these savings effectively declines by 3% each year. As a result, the purchasing power of your money will decrease over time. 

Suppose you’re saving for a new car that costs €15,000 today. If car prices rise by 8% per year due to inflation, that same car will cost nearly €18,900 in three years. Even if you’re earning some interest, you’ll need to save much more to afford the same car. 
 

The effects of inflation on long-term goals 

When you’re saving for something far in the future—like your child’s college education or your own retirement—you need to consider the effects of inflation. The longer your time horizon, the more inflation can compound and increase the cost of your goal. Over 10 or 15 years, inflation can significantly increase the cost of these goals, making it harder to achieve them if your savings aren’t keeping pace. Investing can be a better alternative for you if you’re saving for the long term (five years+). 

Example:  
A four-year college currently costs €44,000, with annual fees and living expenses around €11,000. If education prices increase by 2% per year, the same degree could cost €59,218 in 15 years. If your savings aren’t growing at least as fast as these costs, you may find yourself falling short.  

Why do savings accounts often fall short? 

Many people in Ireland keep their money in traditional savings accounts, which are safe and easy to access. In fact, deposits in Irish banks are protected up to €100,000 per person per institution by the Deposit Guarantee Scheme. This means your money is secure from bank failures—but not from inflation. 

Interest rates on standard savings accounts have been historically low, especially in recent years. If your account is earning 1% or 2% interest, but inflation is running at 4% or 5%, your savings are losing value every year. 

This is why it’s so important to regularly review your savings strategy and consider whether your current approach is helping you reach your goals—or quietly setting you back. 

How can you protect your savings from inflation? 

The positive aspect is that there are multiple options available to you. By taking a proactive approach, you can help your money keep pace with inflation and even grow in real terms. Here are some practical steps you can take: 
 

1. Review your savings rate 

Start by checking the interest rate on your current savings account. Many people have money sitting in older accounts earning very little interest. If that’s the case, consider moving your funds to a higher-interest savings account. Even a small increase in your rate can make a difference over time. 

We offer a range of savings options. Compare rates and features to find an account that suits your needs. You can learn more about our savings options here 
 

2. Consider fixed-term deposits 

Fixed-term deposits often offer higher interest rates than regular savings accounts, especially if you’re ready to lock your money away for a set period. This can be a good option for medium-term goals where you don’t need immediate access to your funds. 
 

3. Explore investment options for long-term goals 

If you’re saving for something five years or more in the future, investing could be a smarter choice. Investments in assets like stocks, bonds, or funds have historically delivered higher returns than savings accounts, often outpacing inflation over the long run. 

Investing carries risks, and the value of your investments can go up and down.  However, if you are focused on long-term goals, you may be able to handle short-term ups and downs and take advantage of compounding returns over time. You can read more about our investment options here. 
 

4. Diversify your approach 

There’s no one-size-fits-all answer. You might keep an emergency fund or short-term savings in cash for safety and easy access, while putting longer-term savings into investments or a pension. Diversifying your approach helps you balance safety and growth. 
 

5. Take advantage of pension savings 

If you’re saving for retirement, consider contributing to a pension plan. Pension investments grow over decades and come with tax benefits in Ireland, making them an efficient way to build a nest for your golden years. 

Learn more about pension options and tax benefits by speaking with a financial advisor or visiting the pensions page on our website. 
 

The role of financial advisor 

Managing inflation and selecting appropriate savings and investment strategies can be complex. Engaging with a professional financial advisor can provide you valuable guidance and support in making informed decisions. 
 

Why talk to a financial advisor? 

• Well for a start, it won’t cost you anything. 

• We’re confident it’ll make you feel your money is sorted. 

• One of our advisors will be happy to take the time to talk over the phone about your plans. 

• They’ll cut out the financial jargon, give their expert advice and help you make a plan. 
   

A financial advisor can help you: 

• Review your current savings and investment strategy 

• Set realistic goals based on your needs and time horizon 

• Find the right mix of savings accounts, investments, and pension plans 

• Understand the risks and benefits of different options 

You can meet with an advisor in person at your local branch or have a conversation over the phone—whatever works best for you. The consultation is friendly, confidential, and focused on helping you achieve your goals. 

What to expect when you talk to us 

It’s the first step to feeling more secure. 

It's one to one: Tech is great - but for some things in life we just want to speak to a human being. You can pop into one of our branches or talk on the phone - the choice is yours. 

What we'll cover: It takes three minutes to set up a time to talk to us. Between us we’ll decide what to cover - then we’ll set time to get into the details. It takes about 40 minutes to cover it all. Smart ways to plug gaps in income, green ways to invest and comfortable ways to retire. 

What happens next: It can be a lot to take in. Don’t worry - you’ve time. We’ll email you the details of what we’ve talked about. And we’ll only be a phone call or email away if you’ve any questions.
 

Your next steps 

If you’re concerned that your savings aren’t keeping up with inflation, act now. Here are some practical steps you can take to help protect your savings 

1. Check your current savings rate and compare it to inflation. 
2. Explore higher-interest savings accounts or fixed-term deposits. 
3. Consider investing for long-term goals, if appropriate for your situation. 
4. Diversify your savings and investments to balance safety and growth. 
5. Talk to an AIB financial advisor for personalised guidance. 

With the right strategy, you can protect your money from inflation and make it work harder for you—helping you achieve your dreams, whether that’s buying a home, funding your child’s education, or enjoying a comfortable retirement.

Conclusion: Protect your future from inflation 

Inflation is a fact of life, but it doesn’t have to derail your financial plans. By understanding how inflation works and taking proactive steps to protect your savings, you can stay ahead of rising prices and build a brighter financial future. 

Your money should work as hard as you do. Don’t let it quietly lose value—take control, review your options, and make informed decisions that help you reach your goals. 

If you’re ready to get started, talk to our financial advisor today. Together, you can create a plan that keeps your savings growing and your future secure. 

Regulatory information

AIB life is a partnership between Allied Irish Bank, p.l.c. (AIB) and Great-West Lifeco to provide protection, retirement and investment solutions through AIB’s Financial Advice service.

Allied Irish Banks, p.l.c. is tied to AIB life for life and pensions business.

Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland.

Saol Assurance d.a.c., trading as AIB life is regulated by the Central Bank of Ireland.

Allied Irish Banks, p.l.c. has a 50% holding in Saol Assurance d.a.c.

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Before your financial review (PDF, 1 page, 98.0KB)

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