What Inflation Does to Your Money
Inflation is the gradual rise in the general level of prices. When prices rise, each dollar buys a little less — its purchasing power falls. A few percent a year sounds harmless, but compounding works on prices exactly as it works on savings. At 3% inflation, prices roughly double every 24 years, which means cash kept under the mattress for a working lifetime loses most of its real value.
This calculator answers two mirror-image questions. First, how much money will you need in the future to buy what a given amount buys today? Second, what will today's cash be worth in today's terms if it simply sits still?
The formulas
How fast prices double
| Inflation rate | Prices double in | $1,000 buys after 20 years |
|---|---|---|
| 2% | ≈ 35 years | ≈ $673 |
| 3% | ≈ 23.4 years | ≈ $554 |
| 4% | ≈ 17.7 years | ≈ $456 |
| 6% | ≈ 11.9 years | ≈ $312 |
What rate should I use?
Many central banks, including the US Federal Reserve, the European Central Bank and the Bank of England, target inflation of about 2% a year over the medium term. Actual inflation varies: it was very low through much of the 2010s and rose sharply in 2021–2023. Over the past century the US average has been roughly 3% a year. For long-term planning, 2.5–3% is a common middle-ground assumption; you can test higher values to stress-test a plan.
Protecting yourself from inflation
- Don't hold more cash than you need. Keep an emergency fund in cash, but invest long-term savings where they can grow faster than prices.
- Look at real returns. A savings account paying 4% during 3% inflation earns about 1% in real terms.
- Update your goals. A retirement income target set in today's money must be scaled up for inflation — our retirement calculator does this for you.
- Negotiate pay rises. A raise below the inflation rate is a pay cut in real terms.
Frequently Asked Questions
What is the difference between nominal and real value?
Nominal value is the number of dollars. Real value is what those dollars can buy, after adjusting for inflation. A nominal gain can still be a real loss if prices rose faster.
Can inflation be negative?
Yes — falling prices are called deflation. You can enter a negative rate to model it, although sustained deflation is rare and often linked to economic downturns.
Why does my personal inflation feel higher than the official rate?
Official measures such as the Consumer Price Index track an average basket of goods. If you spend more than average on items whose prices are rising quickly — rent, food or fuel, for example — your personal inflation rate will be higher.
Does this use historical inflation data?
No. It applies the constant average rate you enter, which is ideal for planning ahead. For exact historical comparisons, official CPI calculators from national statistics offices use actual monthly data.
Disclaimer: This calculator is for educational purposes only and does not constitute financial, tax or investment advice. Results are estimates based on the assumptions you enter; real returns, rates, fees and taxes vary. Consider speaking with a licensed financial professional before making decisions.
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