Real value of money over time.
Equivalent purchasing power
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Nominal cost to match today's purchasing power in N years
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Why a pound today will not be a pound tomorrow
Inflation is the quiet tax that no one sends you a bill for. The cash in your account keeps its number, but each year it buys a little less. This calculator runs the compounding both ways. It tells you what a sum today will feel like in purchasing power after a stretch of years, and it tells you how many nominal pounds you would need in future to match what your money buys now. The Bank of England targets 2 percent on the Consumer Prices Index, and the long-run UK average sits closer to 2.5 to 3 percent, which is why the tool defaults to 2.5 percent.
Twenty years of 2.5 percent on £100,000
The arithmetic is geometric, not linear, so the erosion accelerates. The real value divides today's amount by one plus the inflation rate, raised to the number of years. Take £100,000 over 20 years at 2.5 percent. Divide £100,000 by 1.025 to the power of 20, which is about 1.6386, and you get roughly £61,027. In other words, £100,000 locked in a drawer today would feel like just over £61,000 of spending power two decades from now. The same compounding run forwards shows you would need about £163,862 in future money to buy what £100,000 buys today.
| Years from now | Real value of £100,000 at 2.5 percent |
|---|---|
| Today | £100,000 |
| 5 years | £88,385 |
| 10 years | £78,120 |
| 15 years | £69,047 |
| 20 years | £61,027 |
Pick a rate that matches what you spend
The default 2.5 percent is sensible for general planning, but inflation is not one number. The recent past proves it: CPI ran near target through the 2010s, then spiked into double digits in 2022 and 2023 before easing back. Your personal rate depends on what you buy. Childcare, rail fares, and private school fees have climbed faster than the headline index for years, while electronics have fallen. If you are stress-testing a retirement plan, it is prudent to model a higher figure, say 3 to 3.5 percent, because a small change in the assumed rate has an outsized effect over 30 years. That is the most common mistake I see: people anchor on a year of low inflation and badly underprovision for a long horizon.
What inflation means for your allowances
This tool is for savers, retirees, and anyone setting a long-term target who wants to think in real terms rather than headline pounds. A practical angle most calculators ignore: many UK tax thresholds are frozen rather than inflation-linked, a process nicknamed fiscal drag. The £12,570 personal allowance, the £20,000 ISA allowance, and the £325,000 inheritance tax nil-rate band have all been held flat while prices rise, so in real terms they shrink every year, quietly pulling more people into tax. Cash held outside a tax wrapper is hit twice over, once by inflation and again by tax on any nominal interest. The defence is to keep long-term money in assets that have historically outpaced inflation and to use your ISA and pension allowances, where growth compounds free of UK income and capital gains tax. Inflation works the same across all four UK nations, since CPI is a national measure.
Is CPI or RPI the right measure to use?
For everyday planning, CPI is the official target and the most widely quoted measure. RPI tends to run higher because of how it treats housing and the way it is calculated, and it is being phased out, though it still governs some index-linked gilts and older contracts such as certain rail fares and student loans. If a specific contract references RPI, model that; otherwise CPI is the cleaner default.
If my savings earn 4 percent and inflation is 2.5 percent, am I ahead?
In nominal terms yes, but your real return is roughly the difference, about 1.5 percent a year, and that is before any tax on the interest. Outside an ISA, a basic-rate taxpayer loses 20 percent of the interest and a higher-rate taxpayer 40 percent, which can drag a seemingly positive return back below the inflation line.