If the rate of inflation is higher than the interest rate on your savings account, what is happening to your purchasing power?

When the rate of inflation exceeds the interest rate on your savings account, it means that the money you have saved is not keeping pace with the rising prices of goods and services. Inflation erodes the value of your currency; as prices go up, each dollar you have buys less than it did before.

If your savings account earns a lower interest rate than the inflation rate, the real return on your savings becomes negative. For example, if your savings account earns 2% interest but inflation is at 3%, your effective purchasing power decreases, as the growth of your savings does not offset the loss in value due to inflation. Thus, the correct conclusion is that you are losing purchasing power because the ability to buy goods and services with your savings diminishes over time.