Guide
Inflation-Adjusted Compound Interest
Future pounds are not the same as today’s pounds. Here’s how to think about purchasing power, use a quick 2–3% inflation example, and sanity-check long-term projections.
Published: March 12, 2025 · Updated: December 21, 2025 · By FinToolSuite Editorial
Try the calculator
Run a nominal projection, then test a lower “after inflation” rate to see today’s-money impact.
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Inflation-adjusted (real) value shows what future money is worth in today’s purchasing power. Inflation erodes buying power over time. More on the difference: nominal vs real returns.
Disclaimer
Educational purposes only; not financial advice. Examples are illustrative; real returns vary and investments can go down as well as up. Inflation, taxes, fees, and rules vary by country and provider.
What “in today’s money” means
Prices change. Rent, groceries, and travel can all cost more later. Saying “in today’s money” means adjusting a future amount to what it could buy now.
- Long-term goals (retirement, education)
- Big purchases (home, renovations, travel)
- Multi-year saving plans
Worked example (2–3% inflation)
Future value (nominal) in 10 years: £10,000. Assume inflation at 2.5% per year.
Roughly, today’s-money value would be lower because prices rise. Here’s a simple view:
| Year | Nominal value | Today’s £ (approx.) |
|---|---|---|
| Now | £10,000 | £10,000 |
| In 10 years (nominal) | £10,000 | ~£7,800–£7,900 |
Using 2.5% inflation, £10,000 in 10 years might feel like roughly £7,800–£7,900 today. Exact values depend on the precise method; this keeps math light.
How to use this with the calculator
- Run a nominal projection in the compound interest calculator.
- Apply an inflation adjustment: think of a lower “after inflation” rate as a rough stand-in for real growth.
- Compare scenarios: try 2.0% vs 3.0% inflation assumptions to see the range.
Your inflation may differ
Headline inflation (like CPI) is an average. Your own mix of housing, food, transport, and services can change faster or slower. Estimating personal inflation can make projections feel more relevant.
Estimate your personal inflation here:
Personal Inflation Basket CalculatorThis gives an estimate, not a precise forecast.
Common pitfalls
- Confusing nominal growth with purchasing power.
- Assuming one inflation rate forever.
- Ignoring fees and taxes that reduce real outcomes.
FAQ
What does “inflation-adjusted” mean?
It’s a value expressed in today’s purchasing power after accounting for inflation.
How do I convert future money to today’s money?
Reduce the future amount by an assumed inflation rate over the years (e.g., using a lower real rate).
What inflation rate should I assume?
Many examples use 2–3% as a simple starting point. It’s an assumption, not a guarantee.
Why is my personal inflation different from CPI?
Spending patterns differ. Your mix of costs can rise faster or slower than the overall index.
Does inflation matter if I’m saving in cash?
Yes. If cash earns less than inflation, its purchasing power can shrink over time.
How do I use the compound interest calculator with inflation?
Run a nominal projection, then try a lower rate as a rough “after inflation” view to see today’s-money impact.
Compare inflation scenarios
Run low, base, and high inflation assumptions to see how the projections change.