Common Questions About Inflation & Your Savings

Nominal returns are what your bank statement shows—maybe a 6% interest rate on your fixed deposit. Real returns account for inflation, which in India has averaged 5-6% annually over the past decade. If your deposit earns 6% but inflation is 5.5%, you’re actually only gaining about 0.5% in real purchasing power. That’s the gap between what your money appears to grow and what it actually buys you.

Deposit erosion happens silently. Imagine you had 1 lakh that could buy a basket of goods 5 years ago. Today, that same basket costs 1.28 lakh due to inflation. Even if your deposit grew to 1.20 lakh, you can’t buy what you could before—you’re 8,000 short in real terms. Most fixed deposits, especially from smaller banks, don’t keep pace with actual inflation in essentials like food, fuel, and healthcare.

Take your investment’s interest rate and subtract the current inflation rate—that’s your real return. For instance, if your savings account earns 3% and inflation is running at 6%, your real return is actually -3%, meaning you’re losing ground. We recommend checking your real returns quarterly, not just looking at the interest credited to your account. Most fixed-income earners are shocked to realize their “safe” savings are silently shrinking in value.

You’re living on a fixed income while everything around you gets more expensive. If your pension is 40,000 a month and inflation erodes 5-6% annually, within 10 years you’ll have roughly 40% less purchasing power. You can’t simply “earn more”—your income is locked in. This is why it’s critical to have your savings and investments assessed in real terms, not just nominal figures that look reassuring on paper.

This depends on your situation—there’s no one-size-fits-all answer. Some options include inflation-linked bonds, diversified mutual funds, or a mix that balances safety with inflation-beating returns. The first step is understanding where you stand right now. That’s what our Real Returns Assessment Framework does: it shows you the actual erosion in your current portfolio and helps you see what adjustments might make sense for your specific circumstances.

At least annually, especially if inflation picks up. We recommend a quarterly check-in if you’re actively managing your portfolio, and an annual deep-dive assessment. This doesn’t mean constantly trading or stressing—it means knowing whether your real purchasing power is growing, staying flat, or shrinking. Small adjustments made early compound into meaningful differences over 10, 20, or 30 years of retirement.