How to Calculate Investment Returns in the UK

Investment returns compound over time — meaning you earn returns on your returns, not just your principal. A £10,000 investment growing at 8% per year becomes £46,610 after 20 years with no additional contributions. Add £200 per month and that grows to over £128,000. The difference between nominal and real returns matters too: at 2.5% inflation, an 8% nominal return is only about 5.5% in real purchasing power terms.

The CAGR (Compound Annual Growth Rate) tells you the effective annual rate that would produce the same end result — useful for comparing investments with different timelines. UK investors should also consider the ISA allowance (£20,000 per year) which shelters gains and dividends from tax, significantly improving effective returns over long periods.

To see how inflation erodes returns over time, use our Inflation Calculator. To model savings with a specific goal in mind, see our Savings Goal Calculator.