Everyone feels inflation at the till. It is also a slow thief for savings. If your money earns nothing while prices rise 5% a year, you lose about 5% of its value a year.
To beat inflation, you do not need to stop it, which no one can do. You need to stop it from quietly eating your savings.
What is inflation?
Inflation is the rate at which prices rise over time. Statistics South Africa publishes the latest figure on its website.
If inflation is 5% and your savings earn nothing, your money buys about 5% less after a year.
What does inflation do to R10,000?
Here is an illustration at a steady 5% a year. Real inflation changes from year to year.
| After | R10,000 in cash buys what this buys today |
|---|---|
| 1 year | R9,524 |
| 3 years | R8,638 |
| 5 years | R7,835 |
| 10 years | R6,139 |
After ten years, the same cash has lost nearly 40% of its buying power. If the money earns interest, the loss is smaller. If the interest rate is above inflation, the money grows in real terms.
As a rough guide, your real return is the interest rate minus inflation. A savings account paying 6% when inflation is 5% grows your buying power by about 1% a year. An account paying 3% in the same year loses about 2%.
How do you beat inflation with your savings?
| Money | Where to keep it | Why |
|---|---|---|
| Emergency fund | Interest-bearing savings account | Safe and easy to reach |
| Short-term goals | Savings or notice account | Some interest, low risk |
| Long-term goals | Tax-free savings account or other long-term products | Growth over time |
A tax-free savings account takes R46,000 a year, up to R500,000 for life, and the growth is tax-free. See tax-free savings accounts.
Compare interest rates and fees. A small difference adds up over years.
Why does debt matter when you beat inflation?
Interest on debt often exceeds inflation by a large margin. Paying off costly debt is a guaranteed saving.
A store account or short-term loan costs far more than any savings account earns. At the legal maximums, a first one-month R1,000 loan costs about R309. See interest rates and debt consolidation.
How can you grow your income?
Prices rise, so income should too, and a growing income is one of the surest ways to beat inflation. Ask for raises, update your skills, look for better-paid work or earn on the side. See side hustles.
How can you cut costs?
See cost of living and saving electricity. Review your budget twice a year. See how to budget.
What about fixed costs?
A fixed-rate loan can protect you from interest rate rises, although it may cost more at the start. Compare before you sign. Over time, a fixed repayment becomes smaller compared with your income if your pay rises.
What should you not do?
- Do not borrow to invest.
- Do not keep large amounts of cash at home.
- Do not chase tips from social media.
- Do not trust “guaranteed high returns”. Pyramid schemes and unauthorised investment schemes cause big losses.
Check that providers are authorised by the Financial Sector Conduct Authority.
What do different savings accounts do over ten years?
Inflation and interest work against each other. Here is a hypothetical comparison of R10,000 over ten years, with inflation at a steady 5%. The table shows what each account could buy in real terms, so you can compare real value.
| Where the R10,000 sits | Rate | Value after 10 years | Worth in real terms |
|---|---|---|---|
| A mattress or a zero-interest account | 0% | R10,000 | about R6,139 |
| An account paying 3% | 3% | about R13,439 | about R8,250 |
| An account paying 6% | 6% | about R17,908 | about R10,994 |
Only the 6% account stays ahead of inflation, and by a small margin. The 3% account loses about a fifth of its buying power.
Real rates change from year to year, but the lesson is clear: an account that pays less than inflation loses value, however safe it feels.
Compare the rate on your savings with inflation, and ask your bank about better options for money you will not need soon.
What does inflation do to a pay raise?
A raise that is smaller than inflation is a pay cut in real terms. Here is a hypothetical example with a R10,000 monthly salary and inflation at 5%.
| Raise | New salary | Real change in buying power |
|---|---|---|
| 0% | R10,000 | about -5% |
| 4% | R10,400 | about -1% |
| 5% | R10,500 | about 0% |
| 7% | R10,700 | about +2% |
To beat inflation, your pay needs to rise by more than prices do. If your raise falls short, look at the list of ways to close the gap: ask for a review, build skills for a better role or add side hustles.
Do not wait for a year of falling real pay before you raise the subject.
How does inflation affect debt?
Inflation helps people who owe at a fixed rate and hurts people who save at a low one. But it does not make costly debt cheap. Here is a hypothetical comparison.
| Rate | After one year on R10,000 | |
|---|---|---|
| A savings account | 6% | You earn R600 |
| A store account balance | 24% | You pay R2,400 |
Paying off the 24% balance gives a guaranteed return of 24%, far above any savings account and above inflation. That is why clearing costly debt comes before investing. Cheap, fixed-rate debt is different, because the repayment shrinks in real terms as your income rises.
See interest rates for how rates turn into rand.
What is a four-step routine to beat inflation?
You cannot control prices, but a short routine keeps you ahead.
- Check the figure. Look up the latest inflation figure each quarter on the Statistics South Africa website.
- Check your rates. Compare the interest on your savings with inflation.
- Check your pay. Compare your last raise with inflation.
- Move one thing. Shift savings to a better account, clear a costly debt or ask for a review.
Make it a ten-minute habit, on the first day of each quarter. A habit of small corrections works better than waiting for a crisis.
Which prices matter most to you?
Official inflation is an average. Your own basket may rise faster if you spend more on food, transport and electricity. Track your own prices, as described in cost of living, and focus your cuts on the lines that rise fastest.
If your basket is rising faster than the headline figure, your plan to beat inflation needs to be stronger than the average.
Frequently asked questions
What is a good interest rate?
One above inflation is ideal. Compare banks and products.
Should I invest or pay debt first?
Pay costly debt first, then invest.
Is cash bad?
Cash is fine for short-term needs. It loses value over the long term.
Where can I learn more?
Is it better to keep money in the bank or invest it to beat inflation?
It depends on when you need it. Money for the next year suits a savings account. Money for the long term may suit investments that carry risk, which you should understand first.
Can I beat inflation without taking risk?
Sometimes, if an account pays more than inflation. Check the rate and any fees, and be careful with anyone promising high guaranteed returns.
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