Guaranteed Interest, Guaranteed Loss?

How a bank deposit can increase your money while decreasing your purchasing power.

The Question Most Banks Prefer Not to Answer

Bank deposits guarantee the return of your capital and provide a fixed interest rate. However, there is a critical question rarely addressed:

Does the interest earned actually exceed inflation?

The real return considers the impact of inflation:

r_real = (1 + r_nominal) / (1 + π) − 1

Where:

r_nominal = deposit interest rate
π = inflation rate

Suppose the following:

The bank calculates:

10,000 × (1 + 0.025) = 10,250 €

Your bank balance increases to 10,250 €. At first glance, it appears you earned 250 €.

If prices rise by 3.2%, the purchasing power must be adjusted:

10,250 / 1.032 = 9,932 €

In terms of purchasing power, the value of your money is now approximately:

9,932 €

Real loss: −68 €

The bank account balance grows, but the purchasing power shrinks.

The chart below shows how a deposit evolves over 30 years when interest remains below inflation.