What effect does rising inflation typically have on savings?

Rising inflation typically diminishes the purchasing power of money over time. As prices increase, the same amount of money will buy fewer goods and services than before. This means that if individuals do not earn interest on their savings that matches or exceeds the rate of inflation, the real value of their savings decreases. In other words, the actual worth of the money saved is eroded due to inflation, leading to a decline in its purchasing power.

For example, if someone has savings in a bank account that earns a nominal interest rate of 1% while inflation is running at 3%, the real interest rate (which accounts for inflation) is effectively negative. This reduction in real value of savings explains why rising inflation is associated with a decrease in value of savings. In general, individuals may find their saved money less capable of meeting their future consumption needs due to this erosion in value, reinforcing why the statement about savings decreasing in value under conditions of rising inflation is accurate.