DONNOK3% interest and 2.5% inflation: how much does purchasing power grow?
Compare a 3% return with 2.5% inflation in a worked example, and see why balance growth and real growth differ.
What happens to 1,000 earning 3%?
With no deposits or withdrawals, 1,000 becomes 1,030 after one year at 3%. If prices rise 2.5% over that year, its purchasing power at starting prices is 1,030 ÷ 1.025 ≈ 1,004.88. All amounts use the same currency.
Your balance gained 30; purchasing power gained about 4.88 at starting prices. Each number answers a different question.
Why not just subtract inflation from the return?
Subtracting the inflation rate gives a useful approximation. The exact ratio in this example is (1.03 ÷ 1.025 − 1) × 100 ≈ 0.49%.
Both rates must cover the same period. If taxes or fees apply, calculate the return you keep first. The 3% and 2.5% here are illustrative assumptions, not current rates.
Does weaker purchasing power make saving pointless?
No. Savings also grow through new contributions and can prepare money for upcoming spending. Purchasing power is one perspective, not a score for every purpose of saving.
A broad consumer price index describes average price changes. Your own spending mix can produce a different experience.
How do these perspectives relate to DONNOK?
DONNOK’s My investment display shows nominal growth based on the principal and annual return you set. Read purchasing-power estimates separately and check the data and assumptions shown in the app.
First look at the balance increase, then consider inflation. This one-year educational example does not reproduce every calculation displayed in DONNOK.