Selurio · Blog
What Is Your Money Really Worth? Inflation and Savings in Bulgaria
Imagine you hold €10,000 in a deposit at 2% interest. After a year you have €10,200 — it sounds like a gain. But if over that same year prices rose by 5%, the same basket of goods that cost €10,000 yesterday costs €10,500 today. In real terms you have grown poorer, even though the number in your account is larger.
This is the difference between nominal and real return — and it is one of the most underrated concepts in personal finance, especially in Bulgaria, where inflation was noticeable over the past few years.
Nominal versus real return
- Nominal return — the percentage you see: the interest on a deposit, the growth of a portfolio in euros.
- Real return — how much the purchasing power of your money has changed after we strip out inflation.
Only the real return tells you whether you are truly getting wealthier.
The formula
Many people simply subtract inflation from the return (2% − 5% = −3%). That is a rough approximation. The exact formula (the Fisher equation) is:
Real return = (1 + nominal) / (1 + inflation) − 1
And the real value of the sum after several years:
Real value = Initial amount × (1 + real return)^t
Where t is the number of years. The difference between the crude subtraction and the exact formula is small at low percentages, but grows noticeably at high inflation.
Example: the deposit that loses
Take €10,000 in a deposit at 2% nominal interest, with sustained inflation of 5%, over 10 years:
- Real return ≈ −2.9% per year.
- Nominally the account shows about €12,190.
- In real terms, though, that money buys about as much as around €7,500 today — a loss of purchasing power of nearly 25%.
Check for yourself with the real-return calculator. When inflation exceeds the return, the calculator warns you explicitly — a red flag that your money is losing value.
When the numbers flip
| Scenario | Nominal | Inflation | Real result |
|---|---|---|---|
| Deposit in a crisis | 2% | 5% | You lose ≈ 3% per year |
| Balanced portfolio | 7% | 4% | You gain ≈ 3% per year |
| Zero inflation | 5% | 0% | Real = nominal |
| Deflation | 3% | −1% | Real is above nominal |
The takeaway is not "deposits are bad" — they are excellent for an emergency fund and short-term goals, because they are liquid and safe. The takeaway is that for long-term preservation of value a deposit is rarely enough if inflation is high.
Why this matters for your plans
Real return is the reason long-term calculators can mislead if you look only at the nominal numbers:
- In the compound-interest calculator the impressive final sum is in today's euros only if the return you enter is already real (nominal minus inflation).
- When planning for early retirement (FIRE), your future expenses will grow with inflation — which is why it is wise to compute with a real return.
Assumptions
- Constant inflation. Real inflation changes every year; the calculator assumes an average value for the period.
- An average for consumption. Official inflation is a basket; your personal inflation may differ according to your spending.
- This is an educational model, not a forecast and not advice to invest in any particular asset.
Continue reading
- Compound interest — the eighth wonder of the world — the engine of growth, before inflation.
- DCA: regular investing in practice — how to protect yourself from unstable prices.
- Stocks vs ETFs vs Crypto — where people look for returns above inflation.
Subscribe
Want the next analyses and calculators straight to your inbox? Subscribe to the newsletter — education for investors, no signals and no spam.