Inflation Calculator for Investments & Savings
Use this tool to forecast how much your investments could be worth in the future, based on the growth rate and inflation rate you expect. Past performance is not a reliable indicator of future returns.
Today
Your Savings
Total savings
How long for?
8 years
Your Projection
Inflation vs Growth
Inflation rate
Custom
Growth rate
Custom
Interest rates are likely to change. For simplicity, this calculator assumes your chosen rates remain stable throughout the selected duration.
3.5%
Annual growth rate
$11,238.84
Buying power after 8 years
1.47%
Real rate of return
The journey ahead
Your savings projection
ChartTable
Balance
Buying power (inflation adjusted)
The 'buying power' line illustrates how much you can buy with your money as prices rise due to inflation - it takes into account both your chosen inflation rate and growth rate.
Selecting Lightyear Savings assumes investment into money market fund yielding today's rate. The 1-day yield changes slightly day-to-day and significantly when there is a change to the Central Bank rate. For simplicity, this calculation assumes the 1-day yield does not change. Make sure to read and understand risks related to money market funds before investing, explained in our Risk Disclosure.
Inflation is the average amount that the cost of goods and services rises over time. If things cost more, but the amount of money you have to spend remains the same, your effective spending power is reduced. You can get less with your money.
But what difference does it make when you save or invest? If you were to put all your available money under your mattress in cash it wouldn’t grow in value at all. But put it into an interest bearing savings account, and your money could grow year on year, softening the impact of any inflationary pressures.
If you’re interested to see how far your money might go in future, based on different inflation and interest rates, our future inflation calculator is for you. See how you might weather the effects of inflation with our easy to use tool.
This guide is intended for information only. The value of any investment can go down as well as up. Consider all your options when it comes to saving and investing, based on your own personal risk appetite and timescales - get professional advice if you need it to make sure your investments work optimally for you.
Overview: How to use the inflation calculator
It can be tricky to visualise how the constant battle between inflation vs savings will impact you. If inflation means things get more expensive, but at the same time you’re growing your money with something like a savings account, where does that leave you in terms of real terms spending power?
Our future inflation calculator helps you map out projections of potential growth vs reductions in spending power thanks to inflation, so you can see how far your money might go in different scenarios.
To use our investment inflation calculator:
- Enter your savings or investment amount in pounds
- Enter how long you want to run the calculation for
- Enter the inflation rate you want to model (you can choose from common presets in the dropdown)
- Enter your projected growth rate (i.e. the interest rate on your cash, or expected return on your investments)
You’ll see a projection based on the data entered - in the form of a graph and then a table, so you can visualise the value of your money changing over time in whichever way suits you best. The data the table and graph can show you:
- Your balance: in other words, how much your money will have grown based on your chosen growth rate (ignoring any effects of inflation). By setting your growth rate to 0%, you'll see this line remains flat.
- Your rate of real return: your growth rate adjusted for inflation - this is the rate you're effectively getting once change in purchasing power are taken into account.
- Your buying power (inflation adjusted): the buying power of your savings at the end of your chosen period, taking into account the effects of inflation.
What is inflation and why does it matter?
To get an idea of what inflation is, how it’s measured and why it matters so much we can turn to the Bank of England. The Bank of England plays an important role in helping the UK to manage inflation to hit government growth targets without allowing excessive inflationary pressures to push up costs too much.
As we’ve mentioned, inflation is the amount that the cost of buying goods and services goes up over time. It’s a pretty simple concept - and one we all see in daily life. Buying a chocolate bar today probably costs a lot more than you remember it doing on a Saturday morning when you were a child. But how is this measured in a more global and holistic way?
Measuring UK inflation: the CPI
In the UK, measurements of inflation are carried out and published by the Office for National Statistics (ONS). To measure inflation the ONS selects a ‘basket of goods’ - hundreds of items which are used as a reference for pricing norms. The basket of goods is regularly updated to make sure it remains relevant and reflects things customers buy often. To give a great example, during the Covid pandemic, alcohol hand gel was included in the basket - but this was removed in 2024, with new additions such as air fryers and vinyl records being added in to reflect technology and trends.
On a monthly basis, the ONS takes a measure of this basket of goods and comes up with an average in the change of costs - known as the consumer price index (CPI). CPI details are released monthly - and often make headline news.
How is inflation managed in the UK?
One of the big things which influences inflation is the amount of money in the economy to be used buying goods and services. In simple terms, if more people are willing to spend money, prices go up. If people are feeling the pinch and spending less, businesses may put down prices to encourage buying.
In the UK, the Bank of England can intervene in a couple of ways to help manage inflation. Firstly, the Bank can set interest rates which then flow through to influence the rate you get if you take out a mortgage or if you put money into a savings account. The Bank of England can’t directly change the rates banks offer - but by making adjustments in policy, trends start to shift. This matters because if rates go up it becomes more expensive to borrow, and more rewarding to save - this means there’s less money in the economy which in turn means prices come down.
The second thing the Bank of England can do is at a more macro scale - buying and selling assets like government bonds and gilts. This becomes quantitative easing and was used when inflation in the UK was extremely low.
Inflation vs Savings: A real world example
So we’ve explored what inflation is - but what difference to my spending power might I realistically expect when I hold assets in cash versus investing them for growth. Let’s take a real world example.
If I invest £5,000 for 10 years, into a savings account offering a fixed 4% interest rate, what happens if inflation in the UK hits and remains steady at the Bank of England target rate of 2%? Here’s the value of the investment if I’d left it in cash, compared to the actual asset value and the inflation adjusted spending power available in this projection:
| Asset value (4% growth for 10 years, without considering inflation) | Inflation adjusted return (spending power with 4% growth for 10 years, 2% inflation) |
| £7401.22 | £6071.58 |
As you can see, my real terms spending power if my asset was left in cash has reduced as prices have gone up with inflation. Because the return on my assets in this projection are higher than the inflation modelled, my inflation adjusted spending power still shows growth. This means that by using a savings account that pays interest at a higher rate than inflation was running at, my money still goes further in the end.
As you can imagine, this model can also go the other way. If inflation is very high and the return on your assets is very low, even after investing you might find your real terms spending power is reduced. This makes it crucial to model different scenarios to make sure you’re getting the best balance of return for your particular risk tolerance and needs - our investment inflation calculator can help.
Inflation targets and current inflation
The UK government target for inflation is 2%. This is viewed as slow and steady growth, which is healthy for the overall economy. However, as UK residents will remember, excessive inflation in the UK - the cost of living crisis - has been a talking point over the past couple of years.
Towards the end of 2022 inflation was measuring over 9%, and it remained high until mid-2023, falling to just over 6% by September 2023. This is still significantly above the government target - so what happened?
Inflation is caused by multiple complicated factors so it’s not possible to pin the blame on any single reason - however, the impact of the Covid pandemic was still being felt, plus global conflicts such as the war in Ukraine, all of which increases uncertainty and can lead to unpredictable impacts. By February 2024, UK inflation had come down to 3.8% - but it’s never going to be possible to fully predict where inflation will go next.
Beating inflation: common hedges against inflation
So if we don’t know where inflation will go, what can you do to help protect your money and make sure you’re still able to buy all the things you need? There’s no simple way to beat inflation - but thinking carefully about how you optimise the growth and return of your savings is key here. To get higher (inflation busting!) returns, you’re likely going to have to accept a higher level of investment risk.
You may need professional advice to help you pick the right places to save and invest, but by making sure your money is working harder for you now, you could find in future you have more to play with - no matter what inflation does.
Conclusion: inflation vs savings and the investment inflation calculator
Nobody can fully predict what will happen in future to inflation - or to investment returns. However, you can use our investment inflation calculator to easily visualise different projections and scenarios and to help you play around with models which may suit your risk tolerance. By maximising the potential return on any investments you have you give yourself the best possible chance to build a cushion against inflation - so you can trust that you’ll have enough money to buy and do all the things you want to later in life.