Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2

The correct answer is Less.

The reason you have less is inflation. Inflation is the rate at which the price of goods and services rises. If the annual inflation rate is 2 percent but the savings account only earns 1 percent, the cost of goods and services has outpaced the buying power of the money in the savings account that year. Put another way, your buying power has not kept up with inflation.

Inflation is the loss of your money’s purchasing power. The Federal Reserve aims to keep inflation around 2-3%. That means your cash sitting in your bank account losses 2-3% of its purchasing power each year. Although in the example above, you are getting a 1% return on your savings account, the dollars are buying 2% less. Even though you will end the year with more money in your account, the amount that your savings account will buy is actually decreased.

This is why knowing how to invest is so important. You cannot save enough for retirement by just holding cash, you need to generate some type of return to beat out inflation so that your money continues to have the buying power decades down the road.