How this is worked out
Two things compound at once. The starting balance grows on its own:
A = P(1 + r/n)^(nt)
where P is the opening balance, r the annual rate, n the number of times a year interest is added and t the number of years. Each monthly contribution then grows from the month it arrives, which is the future value of an annuity:
FV = C · ((1 + i)^m − 1) ÷ i
The calculator steps through period by period rather than using the closed form, so contributions made monthly against interest compounded yearly are handled correctly instead of approximately.
The real-terms figure divides the result by (1 + f)^t, converting a future pound into today's purchasing power. On a twenty-five year projection at 2.5% inflation, that reduces the headline figure by roughly 46% — which is why the headline figure on its own is close to meaningless.
A worked example
- Starting amount
- £10,000
- Added each month
- £400
- Return / term
- 6% over 25 years
- Total paid in, including the start
- £130,000
- Growth on top
- £191,847
- Final balance
- £321,847
- In today’s money at 2.5%
- £173,601
The ISA allowance is use-it-or-lose-it, and that changes the maths
You can put £20,000 a year into ISAs. If you do not use this year’s allowance it is gone — it does not roll forward. That makes an ISA contribution a decision with a deadline rather than a decision you can defer, which is unusual and worth exploiting.
Inside a Stocks and Shares ISA there is no tax on growth, no tax on dividends and no tax on withdrawal, so the figures this calculator produces are what you actually keep. Outside a wrapper, dividend tax and capital gains tax both apply, and the annual allowances for both have been cut sharply in recent years. The gap between wrapped and unwrapped returns has widened considerably.
A Cash ISA compounds too, but at deposit rates. Over twenty-five years the difference between a cash rate and an equity return is not a detail — it is usually most of the final balance.
A pension gets tax relief, which is a return before any investment return
Every £80 a basic-rate taxpayer puts into a pension becomes £100 immediately. That is a 25% uplift on the money before the market does anything at all. A higher-rate taxpayer claims a further 20% through self-assessment, making the effective cost of £100 in the pension about £60.
No fund performance available to you matches that. It is why, for most people paying higher-rate tax, the pension beats the ISA on arithmetic — with the significant caveat that the money is locked until the minimum pension age and the withdrawals are taxed as income beyond the tax-free lump sum.
If your employer matches contributions, that is separate again and it comes first. Declining an employer match is declining part of your salary.
The crossover year, and why the first decade feels like nothing
The calculator marks the year when growth overtakes the money you have put in. On the example above it arrives in year twenty. Everything before that point looks disappointingly linear, which is exactly when most people conclude it is not working and stop.
The mechanism is simple and unavoidable: growth is proportional to the balance, and early on the balance is mostly your own contributions. Compounding has nothing to work with yet. It is a function of time far more than of rate, and time is the input you cannot buy later.
Charges, and the difference a percentage point makes
A platform charging 0.45% holding a fund charging 0.75% costs you 1.2% a year, every year, on the whole balance. Over twenty-five years that removes roughly a fifth of the final figure compared with a 0.2% all-in index option — on the example above, something in the region of £60,000.
The FCA requires costs to be disclosed, but they are disclosed in several places rather than one. Add the platform fee, the fund ongoing charges figure and any transaction costs, then subtract the total from the return in this calculator. If your projection only works at 6% gross before charges, it does not work.
Assumptions and sources
- Compounding formula
- Standard compound interest with periodic contributions, walked period by period. Verified in tools/test/finance.mjs.
- Inflation adjustment
- Real value = nominal ÷ (1 + inflation)^years. The Bank of England’s CPI target is 2%; the long-run outturn has been higher.
- ISA and pension tax treatment
- Growth inside a Stocks and Shares ISA or a registered pension is free of UK income and capital gains tax. Allowances and reliefs are set annually. checked 2026-08
- Default return
- A conservative long-run real return for a diversified equity portfolio. A default, not advice; past performance is not a forecast.