Inflation Cash Erosion Calculator
Example: Cash balance to analyze: 20000 $ · Expected annual inflation rate: 3 % · Savings account APY: 0.5 % · Years to project: 10 yr
| Buying power lost to inflation | $4,473 |
| Real return (APY minus inflation) | -2.50% |
| Nominal future value | $21,023 |
| Inflation-adjusted future value | $15,527 |
Worked example
$20,000 in a 0.5% savings account grows nominally to $21,023 over ten years. But at 3% inflation, that $21,023 only buys what $15,597 buys today — a real loss of $4,403 in purchasing power despite the account balance growing. The real return is negative 2.5% per year. A 5% HYSA in the same environment delivers a positive 2% real return.
Frequently asked questions
What is the difference between nominal and real return?
Nominal return is the dollar return your account shows. Real return adjusts for inflation — it is approximately APY minus the inflation rate. A 5% APY with 3% inflation gives a roughly 2% real return. When real returns are negative, your account balance grows but buys less each year.
What inflation rate should I use?
The Federal Reserve targets 2% inflation as measured by PCE. The 30-year average CPI is around 2.5–3%. For a conservative projection use 3%; for a stress-test use 4–5% (reflecting 2021–2023 levels). Avoid using a single-year spike as a permanent assumption.
Is keeping large cash balances ever justified despite inflation?
Yes — for emergency funds, near-term spending goals (within 1–2 years), or as a deliberate stable buffer. The cost is the real return drag. For amounts beyond a 6-month emergency fund sitting idle for 5+ years, the inflation erosion is a meaningful wealth tax that investing can offset.
How does a HYSA compare to inflation historically?
Varies by rate environment. In 2022–2024, top HYSAs reached 5–5.5% APY while CPI peaked at 9% then fell — HYSA savers briefly had negative real returns, then positive as inflation cooled. Over long periods, the 10-year Treasury (a similar risk profile) has historically delivered a slight positive real return, while bank savings have averaged near zero real return after fees and inflation.