Figures are illustrative only, ignore charges and tax, and are not a forecast or personal recommendation.
This calculator shows how much purchasing power a cash savings balance loses to inflation over a chosen number of years — expressed both as an amount and as a percentage of the original sum. It's designed to make a quiet, easy-to-overlook risk visible: money that looks unchanged on a bank statement can still be losing real value every year inflation runs ahead of the interest being earned on it.
How "erosion" is calculated
The calculator divides your savings amount by (1 + inflation rate) compounded over the number of years entered, which gives the amount's purchasing power in today's terms after that many years of inflation. The difference between the original amount and that purchasing-power figure is shown as the amount lost, along with the percentage this represents of the original sum. Note this calculator, deliberately, shows the effect of inflation in isolation — it doesn't net off any interest the savings might be earning, so you can see the two forces (inflation eroding value, interest adding to it) separately and then compare them yourself.
Worked example
£20,000 held for 10 years at an assumed 3% average annual inflation rate loses roughly a quarter of its purchasing power over that period — meaning it would buy noticeably less in 10 years' time than it does today, even though the number on the statement stays at £20,000 (or grows only by whatever interest was earned). If the account paid, say, 2% interest a year over the same period, the nominal balance would grow to around £24,400, but the real purchasing power would still be lower than the original £20,000 — interest below the inflation rate slows the erosion but doesn't reverse it.
Why this matters for large cash balances
Holding an appropriate emergency fund in cash is sensible and shouldn't be affected by this concern — that money needs to be accessible and stable, not growing. But cash balances held well beyond emergency-fund needs, for many years, without a rate that keeps pace with inflation, are a common way investors unknowingly lose real wealth over time. This is one of the central arguments for investing money not needed in the near term, discussed in our Savings vs Investment Calculator and our guide to cash as an asset class.
Frequently asked questions
Does a high-interest savings account solve this problem?
It helps, but only if the interest rate exceeds the inflation rate — when it doesn't (which has happened during several periods in recent UK history), even a "good" savings rate can still leave you losing real purchasing power, just more slowly than in an account paying less.
Is this the same as the Inflation Calculator?
It uses the same underlying formula as our general Inflation Calculator, framed here specifically around a savings balance and its erosion, with the loss shown as both an amount and a percentage for clarity.
Should I move all my cash into investments to avoid this?
Not necessarily — investments carry their own risk of loss, particularly over shorter time horizons, so the right balance depends on when you might need the money and your tolerance for seeing the value fluctuate, covered in our guide to risk tolerance versus risk capacity.
What inflation rate should I use for a realistic result?
A cautious long-run planning assumption is often somewhere in the 2-3% range, though it's worth also testing the calculator at a higher rate to see how sensitive the result is, given recent years have seen inflation well above that range at times.
Common mistakes when assessing inflation erosion
A frequent mistake is only thinking about inflation erosion at the point money is first saved, rather than continuously over the whole period it's held. A savings balance sitting untouched for 15 years doesn't erode all at once — it loses purchasing power gradually, year by year, which is why reviewing large cash balances periodically (rather than setting a savings plan and never revisiting it) helps catch the problem before too much value has been lost.
A second mistake is applying this calculator's logic uniformly to all cash holdings, when in fact different pots of money serve different purposes and shouldn't necessarily be treated the same way. An emergency fund needed within days or weeks is appropriately held in cash regardless of inflation erosion, because its job is stability and access, not growth — the erosion concern applies most strongly to cash balances that are larger than needed for near-term purposes and have simply been left there out of inertia.
How much cash should I realistically hold?
A common guideline is 3-6 months of essential expenses as an emergency fund, plus any known near-term spending (under about 2-3 years away) — amounts beyond that, held for longer periods, are the ones most worth reviewing against this calculator's erosion figures.
Does erosion affect a Cash ISA differently from a regular savings account?
No — the erosion effect from inflation is identical; a Cash ISA's advantage is sheltering the interest earned from income tax, not protecting the balance from inflation, which affects both account types in exactly the same way.
Is erosion worse for larger savings balances?
The percentage lost is the same regardless of the balance size, but the absolute amount lost is obviously larger for bigger balances — which is exactly why reviewing what to do with larger cash holdings becomes more financially significant as the balance grows.
Does erosion apply to money inside a pension or ISA too?
If that money is held as cash within the wrapper (rather than invested), yes — the tax wrapper shelters returns from tax, but it doesn't protect cash held within it from losing purchasing power to inflation in exactly the same way as cash held anywhere else.
A useful habit is to re-run this calculator whenever a large cash balance has been sitting untouched for more than a year or two — a lump sum from a house sale, inheritance, or bonus that hasn't yet been allocated to a specific short-term purpose is a common example of money that quietly loses real value simply through inertia rather than any deliberate decision.