Why Inflation Matters When Choosing Where to Put Your Money

Inflation is when prices go up over time. Think about it this way: if a loaf of bread costs KSh 60 today, inflation means that same loaf might cost KSh 65 or KSh 70 next year. Your money buys less than it used to.

Imagine you have KSh 1,000 hidden under your mattress. If inflation is 8% this year, that KSh 1,000 will only buy what KSh 920 could buy before. You did not spend anything, but your money lost value just by sitting there.

Last year: A 2kg packet of unga cost KSh 120

This year: The same packet costs KSh 135

What happened? Prices went up by about 12.5%. That is inflation at work.

The lesson: If your savings only earned 5% interest, you actually lost money in real terms because prices rose faster than your earnings.

When you save or invest money, you want it to grow. But if inflation is eating away at your money faster than it is growing, you are actually getting poorer without realizing it.

The golden rule is simple: Your money must grow faster than inflation. Otherwise, you are losing money.

The "real return" is what you actually earn after subtracting inflation. It is the true picture of whether your money is growing or shrinking.

What Your Investment Earns | Inflation Rate | Your Real Return (What You Actually Get)

5% | 8% | -3% (You are losing money!)

8% | 8% | 0% (Just breaking even)

12% | 8% | +4% (You are actually growing!)

15% | 8% | +7% (Strong real growth!)

Different savings and investment options (we call them "instruments") give you different returns. Here is how to think about them when inflation is high:

Before you put your money anywhere, ask yourself these questions:

Inflation is like a silent tax on your savings. Always compare what your money earns against the inflation rate. If your return does not beat inflation, your money is actually losing value every single day.

Learn how inflation eats your savings and how to pick the right accounts to protect your wealth. Simple tips to make your money work harder.