When inflation rises — Colombia reached 13% in 2022 and has remained elevated — money that is not moving loses value at an accelerated rate. $10,000,000 kept under the mattress during a year of 10% inflation has the purchasing power of $9,090,909 at the end of the period. Idle money does not just fail to grow: it shrinks. But there are concrete strategies to protect it and even grow it in real terms.
Inflation acts like a tax no one votes on. If you have $5,000,000 in a savings account at 3% EAR and inflation is at 9%, your real interest rate is negative: -6%. By year end your money buys 6% less than it did before — almost $300,000 in lost real value. To maintain purchasing power, your savings need to earn at least as much as inflation. To grow in real terms, you need to beat inflation.
Variable-rate CDs: some CDs in Colombia are indexed to the IBR (Indicador Bancario de Referencia), which tends to rise when inflation rises. In periods of high inflation, these outperform fixed-rate CDs. UVR TES (inflation-linked government bonds): TES indexed to the UVR are issued by the Colombian government and their return is tied to inflation. They are the most direct way to hedge: when inflation rises, the value of these securities rises. Stocks and real estate: historically, real assets tend to adjust for inflation over the long term. More volatile short-term but better protection in periods of sustained inflation.
Instead of putting all your money in a single 360-day CD, consider laddering: divide the sum into equal parts and open CDs of 90, 180, and 360 days. When the 90-day CD matures, you renew it at the then-current rate — which may be higher if the Banco de la República raised rates. This strategy gives you periodic liquidity, the ability to capture higher rates if they rise, and an average return better than being 100% in the shortest CD.
When prices rise, fixed budgets stop working. What used to cost $200,000 now costs $220,000. If you do not actively adjust your budget, the needs category quietly grows and eats into your 20% savings. The discipline in times of high inflation is to review your budget quarterly, identify which categories rose faster than average inflation (typically food and services), and find substitutes or reduce volume in those categories to protect your savings margin.