Even if you hide your savings in the most inaccessible vault, if you keep them in cash, their value will decrease over time. This is due to inflation, which reflects the pace of price level growth in the economy. Because of inflation, goods and services become increasingly expensive, so you can buy less and less with the same amount of money.
Example:
If the average inflation rate in Slovakia in 2021 was 3.2 percent per year, 1000 euros held in cash for the same year lost purchasing power amounting to 31 euros.
Calculation:
1000 / 1.032 = 968.99 euros -> If you deposited 1000 euros into a vault at the beginning of 2021, by the end of the year, due to 3.2 percent inflation, you could only buy goods worth approximately 969 euros.
1000 - 969 = 31 euros -> You lost this amount of euros due to inflation for every thousand euros you held in cash during the year.
