Inflation: How It Erodes Savings and What to Do About It
Money sitting idle loses value every year. We explain how inflation works, how much it affects real returns, and how to protect your savings.
If you hold 10,000,000 UZS in a zero-interest account, the number stays the same after a year — but you can buy less with it. That is inflation: a slow, constant erosion of purchasing power.
What Is Inflation
Inflation is the rise in the general level of prices in an economy. At 10% inflation, things that cost 100,000 UZS in January cost 110,000 UZS in December. Your money is the same number — but its real value has fallen.
How Inflation Affects Savings
You deposit 10,000,000 UZS at 5% annual interest. Annual inflation is 12%.
| Metric | After 1 year |
|---|---|
| Account balance (nominal) | 10,500,000 UZS |
| Real purchasing power | ~9,375,000 UZS |
| Real return | −5.4% |
The account balance grew in nominal terms — but in real terms, purchasing power declined.
Real Return
Real return ≈ nominal rate − inflation.
If a deposit pays 18% and inflation is 10%, real return is about +8%: money grows. If the deposit pays 8% at 12% inflation, real return is −4%: money loses value despite earning interest.
- A deposit rate below inflation = a real loss
- Stocks and assets historically outpace inflation over long horizons
- Real estate has historically served as an inflation hedge
- Currency diversification reduces exposure to high inflation in any single country
What to Do
- Compare deposit rates to inflation, not to zero — that is the only honest comparison
- Keep part of your savings in assets that historically outpace inflation
- Do not hold large amounts in cash for longer than a few months
- Calculate the real return on your investments with the Solvix calculator
Related calculator
Real Return Calculator