Compound growth happens when a return becomes part of the balance that can earn future returns. It is useful for exploring long-term saving, but a smooth calculator line is an assumption: investments can lose value as well as grow.
Start with a simple example
£10,000 growing at 5% a year becomes £10,500 after one year and £11,025 after two. The second year adds £525 because the return applies to the original money and the previous £500 gain. With no further contributions, the same constant rate would produce about £16,289 after ten years.
This example excludes charges and tax. It does not mean that a portfolio will return 5% each year. If an investment loses 20%, it needs a 25% gain to recover: £100 falls to £80, and £20 is one quarter of £80.
Contributions are part of the story
Separate money you put in from growth earned. A large final balance may reflect substantial contributions rather than exceptional investment performance. The timing matters too: a deposit at the start of a period has longer to grow than one at the end.
For a personal experiment, run the calculator with the same starting amount and rate but different monthly contributions. Then hold the contribution steady and shorten the duration. This shows which parts of the outcome depend on saving habits and which depend on uncertain returns.
What will the money buy?
A future pound may buy less than a pound today. To convert a future balance into today’s spending power, divide it by the cumulative inflation factor. £20,000 received in ten years is worth about £16,407 in today’s money if inflation averages 2%.
The precise annual real return is (1 + nominal return) ÷ (1 + inflation) − 1. A 5% return with 2% inflation is approximately 2.94% real growth. Subtracting inflation is a useful approximation, but the calculator can use the more precise relationship.
Fees compound too
On £10,000 over 20 years, constant net returns of 5% and 4% produce about £26,533 and £21,911 respectively. This is an illustration of a one-percentage-point difference, not a prediction of provider performance. Check whether a quoted return is already after fund charges before deducting fees again.
Use a range, not one reassuring number
- Enter the starting balance and contributions you can realistically afford.
- Try a lower return, including zero or a negative scenario.
- Include inflation and check how fees are represented.
- Check the yearly table and contribution totals, not only the headline.
- Review the assumptions when your circumstances change.
Cash and investments serve different purposes. MoneyHelper explains saving, investing and inflation. A projection cannot determine your capacity to absorb a loss.
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