Stocks vs Inflation: Does the Stock Market Beat Inflation? Avoid the Savings Trap
We test whether the stock market beats inflation once money printing counts, using the S&P 500's 468x rise since 1926 and savings that fell to 4.3 cents.
Topic
The Savings Trap: Why Cash Loses to Money Printing
We used the St. Louis Fed’s 3-month Treasury bill series for Part II because it is the closest thing to a safe savings rate that goes back a century, and over that time it averaged 3.17% a year.
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The money supply grew at 6.66% a year over the same period. That gap, about 3.48% every year, is what we call the savings trap, and over a lifetime it turns a dollar saved in 1926 into 4.3 cents of today’s money pool, even with all the interest reinvested.
- 3.17% Average 3-month T-bill rate Against average M2 growth of 6.66% a year in Part II.
- 4.3 cents $1 saved in 1926 Its M2-adjusted value in 2025, with all interest reinvested.
- 25.8x T-bills since 1928 An M2-adjusted value of 0.055, the worst on the scorecard.
Articles on Savings Trap
1 article from our research on this topic.
Plain-English definitions
Key terms for savings trap
- Treasury bill
- Short-term US government debt. We used the 3-month T-bill rate as a stand-in for the best safe savings rate available.
- Hurdle rate
- The return needed just to break even with money printing. In most decades since 1928 it was higher than the yield on safe savings.
- CPI
- The Consumer Price Index tracks the price of a basket of everyday goods and services. It measures prices rather than the amount of money in circulation.
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
FAQ
Questions about savings trap
Answers drawn from the figures in our research. Educational only, not financial advice.
Why do savings accounts lose money over time?
Because the interest has almost never kept up with money printing. In every decade of the last century, according to the series overview, the savings rate sat below M2 growth, and we suspect it has to, since a higher rate would make government debt very hard to service. Even with every penny of interest reinvested, savers at the long-run average of 3.4% lost about 95% of their purchasing power over 100 years.
Are government bonds a way out of the savings trap?
Not on the Part III scorecard. Long-term US government bonds grew 77.2x from 1928 against 473x for M2, which leaves them with an M2-adjusted value of 0.163, and T-bills did worse at 0.055. Baa corporate bonds with coupons reinvested were the only fixed-income asset that came out ahead, and only just, at 1.14.
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