How inflation ate European savings — and what to do now

€25,000 saved and not a cent spent — the invisible loss

Those savings stayed untouched. Not when flights to Lisbon were cheap. Not when a flatmate suggested splitting a better apartment. Not when a sibling needed a small loan. The money stayed where it was — growing by fractions of a cent each month. By the end of 2024, the balance read €25,075. More than before. Good.

Then came the moment of truth: trying to buy a car. Nothing fancy — a used Seat Ibiza, the kind of practical hatchback half of Spain drives. In early 2022, a decent one cost around €14,000. By late 2024, the same car — same model, same mileage — was listed at €18,500. Staring at the listing, then at the bank balance, brought a feeling hard to name. Everything had been done right. Every rule followed. And somehow, less was affordable.

This isn't a story about a bad investment or reckless spending. It's about something far more insidious — money that looks the same on screen but buys less with every passing month. About the inflation wave that swept across Europe from 2022 to 2024 and silently consumed the purchasing power of millions of savers who thought they were doing the right thing.

Why we don't see it — and no, it's not about being uninformed

If that story feels familiar — if you're reading this with a savings account that hasn't moved much and a vague sense that things cost more than they used to — you're not alone, and you're not financially illiterate. Your brain is doing exactly what it evolved to do. The problem is that the mental shortcuts that help us navigate daily life actively hide the damage inflation does.

€25,075 on screen — the brain registers: more than before. The number went up. Everything is fine. But €25,075 in December 2024 bought roughly what €21,400 would have bought in January 2022. The brain responded to the nominal figure — not to what it represented. This is the money illusion at work: the number on your account is a veil, and behind it, purchasing power is quietly evaporating.

There's a second mechanism reinforcing the first: status quo bias. Described by Samuelson and Zeckhauser in the Journal of Risk and Uncertainty (1988), it's the deeply human preference for keeping things as they are — even when change would be beneficial. Moving money from a savings account to bonds, an ETF, or even a better savings product requires an active decision. And every active financial decision triggers fear of making the wrong choice. So the money stays. "Safely." Except it's not safe at all.

Across Europe, there's also a cultural dimension. In countries like Germany and the Netherlands, the memory of hyperinflation (the Weimar Republic, 1923) has paradoxically created a deep attachment to cash and savings accounts — the very instruments most vulnerable to inflation. In Southern Europe, the euro's stability since 2002 created a generation that had never experienced serious inflation. When it arrived in 2022, the mental models simply weren't there. The result: across the eurozone, hundreds of billions of euros sat in savings accounts earning 0–1% while inflation raged at 8–10%.

How inflation actually eats your money — step by step

To understand what happened to those savings — and to the savings of millions across Europe — we need to set emotions aside for a moment and look at the numbers. Because inflation isn't an abstract concept from an economics textbook. It's a specific amount of money you lose every single month.

Three scenarios — the same €25,000, three different decisions

Imagine three people who each had exactly €25,000 in savings in January 2022. Each made a different choice.

Three scenarios, the same starting amount, the same time period. The difference between Scenario A and Scenario C? Roughly €5,000–€6,000 in real value. That's a month's rent in most European capitals. A holiday for two. A professional certification course. And the saver in Scenario A didn't do anything wrong — they simply did nothing.

Why savings accounts lose to inflation

The mechanism is brutally simple. Your savings account in a major European bank in early 2022 offered 0.01–0.5% per year. Even as the ECB began raising rates aggressively from July 2022, reaching 4.5% by September 2023, the rates on consumer savings accounts lagged far behind. According to ECB data, the average overnight deposit rate for households in the eurozone only reached around 0.5% by mid-2023 — while inflation was still above 5%.

Economists call this a negative real interest rate — a situation where deposit rates are lower than inflation. According to ECB and Eurostat data, the real interest rate on eurozone deposits was negative for the entire period from 2021 through most of 2023. Every single day your money sat in a standard savings account was a day it lost value.

The "invisible tax" — why inflation is worse than you think

Nobel laureate Milton Friedman called inflation "taxation without legislation" — the only tax a government can impose without a parliamentary vote. The metaphor is apt, but it misses one crucial detail: you can see income tax on your payslip. Inflation is invisible. No bank sends you a statement saying: "This year, inflation took €2,100 from your savings." This invisibility is precisely why inflation is such an effective wealth destroyer. You don't see the loss — so you don't react.

Let's return to Scenario A. If someone had said in January 2022: "Here's a choice — pay €3,570 in tax for keeping your money in a savings account, or pay €2,000 with term deposits, or pay nothing by investing" — the third option would have been chosen without hesitation. But nobody framed it that way. Because inflation doesn't come with an invoice.

The “safe account” myth — why money in your bank isn’t safe

There's one belief I hear more than any other. Parents repeat it, grandparents swear by it, colleagues at work nod along, and even some bank advisors reinforce it. It sounds responsible. It feels prudent. And it costs Europeans billions of euros every year.

Where does this myth come from? It has deep roots. In Germany, the collective memory of the 2008 financial crisis — when stock markets crashed while bank deposits were protected by government guarantees — cemented the idea that "the bank is safe, the market is dangerous." In Southern Europe, decades of relatively stable prices under the euro created a generation with no lived experience of significant inflation. In the UK, the trusted Premium Bonds and "ISA culture" made cash savings feel like the responsible default.

The myth is further reinforced by what behavioural economists call the asymmetry of risk visibility. When you invest in an ETF and the market drops 10%, you see it immediately — a red number on your screen, a specific euro amount lost. That hurts. When inflation erodes 10% of your savings' value, you see nothing. The balance is the same or slightly higher. No pain signal = no reaction. Our brains treat cash savings as "loss-free" not because there's no loss — but because we can't see it.

According to the ING International Survey (2023), 62% of Europeans consider a bank account the "safest place for savings" — compared to 24% choosing government bonds and 18% choosing investment funds. The survey, covering 15 European countries, found that awareness of inflation's impact on savings was lowest among those aged 25–34 — precisely the demographic most affected by the 2022–2024 inflation surge, as they had the longest time horizon ahead of them.

What to do with your money — concrete steps

You now understand that keeping money in a savings account during inflationary periods is a real loss. You understand why your brain hides this from you. The most important question remains: what should you actually do?

Before we get to the steps, one foundational principle:

Step 1: Calculate your real rate of return — it takes 2 minutes

Check the interest rate on your savings account (you'll find it in your banking app or account terms). Subtract the current inflation rate for your country (Eurostat publishes monthly HICP data; a quick search for "inflation rate [your country]" will do). If the result is negative, your money is losing value. Example: 1.5% interest rate, 3.2% inflation = real rate of -1.7%. On €20,000 in savings, you're losing €340 per year in purchasing power.

Step 2: Separate your "emergency fund" from the rest

Your emergency fund — 3 to 6 months of living expenses — needs to be easily accessible. This is the only money that "must" sit in a savings account or short-term deposit. Everything above that? It should be working. Money beyond your emergency cushion, parked in a near-zero savings account, isn't "safe" — it's actively being eroded.

Step 3: Move your emergency fund to the best available account

Even liquid savings don't have to earn 0.1%. Neobanks like Trade Republic, N26, and Wise now offer 3–4% on savings balances across Europe. Traditional banks like ING and Santander periodically offer promotional rates. Switching takes 10 minutes. This isn't investing — it's moving money from one pocket to another, except one pocket pays you more.

Step 4: Consider inflation-linked government bonds

Most European governments issue inflation-linked bonds accessible to retail investors. Germany has Bundesanleihen, France has OATi, Italy has BTP Italia, and the UK has Index-Linked Gilts. These bonds automatically adjust their returns to match inflation, meaning your purchasing power is protected by design. They're typically available through government platforms or brokers with low minimum investments. For money you don't need for 2–5 years, inflation-linked bonds are the simplest shield against purchasing power erosion — with sovereign guarantees and zero market risk at maturity.

Step 5: For long-term surplus — a global ETF

If you have savings you won't need for 5–10 years or more, a global index ETF (such as one tracking the MSCI World or FTSE All-World) is historically the most effective tool for beating inflation over the long term. The average annual return of the MSCI World index since 1970 has been approximately 8–10% before inflation. This isn't a guarantee — markets can and do fall in the short term. But no 10-year period in the index's history has ended in a loss. Opening a brokerage account takes minutes through platforms available across Europe — Trade Republic, Degiro, Interactive Brokers, or your local equivalent.

Tools that help you see the full picture

The biggest barrier to protecting your savings from inflation isn't technical — it's informational. The saver in Scenario A didn't react for three years not because of a lack of options, but because the problem was invisible. The balance went up. Notifications were quiet. No one said: "Your money is losing value."

That's why the first step is a tool that gives you the full picture of your finances in one place. You shouldn't have to log into three different banks. You shouldn't have to mentally add up balances, subtract loan payments, and guess how much you spent on groceries. Martia connects to European banks through secure PSD2 Open Banking APIs — N26, Revolut, ING, Santander, BNP Paribas, and many more — and shows everything on one screen. Not to judge. Just so you can see.

Because most people don't need a course in investing. They need one moment where they see the truth about their finances. The rest follows naturally.

Sources and references

Every claim in this article is based on verifiable academic research or official reports from public institutions.

Academic research

• Fisher, I. (1928). The Money Illusion. Adelphi Company, New York.
• Shafir, E., Diamond, P. & Tversky, A. (1997). "Money Illusion." The Quarterly Journal of Economics, 112(2), 341–374. DOI: 10.1162/003355397555208
• Samuelson, W. & Zeckhauser, R. (1988). "Status Quo Bias in Decision Making." Journal of Risk and Uncertainty, 1(1), 7–59. DOI: 10.1007/BF00055564
• Kahneman, D. & Tversky, A. (1979). "Prospect Theory: An Analysis of Decision under Risk." Econometrica, 47(2), 263–291.
• ING International Survey (2023). "Savings, Investments and Debt." ING Economics Department. ING Think

European data and reports

• Eurostat. Harmonised Index of Consumer Prices (HICP), monthly data 2021–2024. ec.europa.eu
• ECB. MFI interest rate statistics — deposit rates for households, 2021–2024. ecb.europa.eu
• OECD/INFE (2023). "Financial Literacy and Resilience in the EU." OECD International Network on Financial Education. oecd.org
• Friedman, M. (1974). "Inflation as a form of taxation" — Nobel lecture and numerous publications on inflation as a hidden tax.