Inflation vs. nominal savings: purchasing power decreases — If inflation exceeds your savings account APY, the real purchasing power of those saved dollars falls. Nominal interest (the stated rate or APY) measures how many dollars you’ll have in the future, but inflation measures how much those dollars will buy. For example, if your savings grow by 1% and inflation is 3%, your real return is roughly -2% for that year: the nominal balance increases but can buy less than before. This erosion is especially relevant for multi-year horizons: persistent negative real returns mean gradually shrinking purchasing power unless rates rise or you move some funds to higher-yield, appropriately liquid instruments. That said, the emergency fund’s purpose is liquidity and capital preservation; some short-term real return sacrifice is an accepted trade-off for immediate access and safety.

Practical responses to inflation for savers — Recognize the trade-off: keep emergency cash liquid and safe, but review whether you can earn slightly better yields without sacrificing access (high-yield savings, short-term CDs, or tiered cash-management accounts). For longer-term savings goals (beyond the emergency horizon), consider diversifying into inflation-beating assets like bonds, TIPS, or equities as appropriate for the time horizon and risk tolerance. Also monitor real returns and adjust your overall strategy: if inflation is persistently higher than safe yields, you may accept a slightly longer investment horizon for non-emergency goals or seek accounts with better APYs while maintaining a comfortable liquid buffer.