What is compounding, and what does it do over time?

Compounding over time

Charlie puts aside £200 a month from 25 to 35, then stops: £24,000 invested in all. Warren puts aside the same from 35 to 65: £72,000 invested in all.

Both pots grow at the same rate. That rate is 7% a year, the one UK statutory pension illustrations prescribe for the most volatile asset group.

At 65, Charlie holds £252,418 and Warren holds £226,706. From age 41, Charlie’s growth exceeds everything Charlie paid in. From age 55, Warren’s growth exceeds everything Warren paid in.

The earlier the paying in starts, the longer compounding has to work on it.

Compounding debt and savings

The same idea pointed the other way: one balance saved and one borrowed, each growing at its own rate.

The two rates differ on purpose: borrowing rates are typically higher than savings rates. The borrowing rate here is the middle of the range UK credit-card rates typically run in, 25% to 36% a year (industry estimate, not official guidance, read 9 September 2026).

£2,000 saved at 3.5% is £2,821 after 10 years untouched. £2,000 owed at 30.5% is £28,651 after 10 years with nothing repaid. The saved balance doubles in 20.1 years. The owed balance doubles in 2.6 years. Compounding works against a borrower exactly as it works for a saver, and borrowing rates are usually the highest rates in a household’s finances.

Investment outcomes improve when high-interest debt is cleared as quickly as possible.

Inflation, the quiet thief

Charlie’s pot again, now in today’s money, beside the same payments held as cash at no interest. The figures beneath give it in future money too.

At 65 the pot shows £252,418, which is £94,008 in today’s money at 2.5% inflation. £100 of spending today costs £269 in the final year at that rate. The same payments held as cash at 0% interest come to £24,000, which buys £8,938 of today’s spending by 65.

In most periods, inflation reduces the future purchasing power of your money. A return that merely matches inflation leaves you no further ahead in real terms.

Monthly amounts count at each year’s end and growth compounds once a year. Real returns vary, and every figure here is an illustration, not a projection of anything you hold.

Beside real figures

Charlie and Warren are an illustration. Two other guides give real figures: what people of each age hold in their pensions, and what a year of retirement costs.

What would the person you will be at retirement tell you today?

How Landfall handles it

In the apps, Learn carries the same three charts, with every amount and rate on a slider to change.

A pound decades from now buys less than a pound today. Landfall does its arithmetic in the money of each future year, then converts the answer back so you can read it in prices you recognise.