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Investing & Savings · Fisher equation

Inflation Impact Calculator

£10,000 today won’t buy £10,000 worth of stuff in ten years — inflation chips away at every pound. This shows the real purchasing power of your future money, not just the headline number.

£
yrs
%
%

In today’s money

£12,121

Purchasing-power loss: 0.3%

Future-value breakdown

  • Today’s amount
    £10,000
  • Nominal future value (5% × 10y)
    £16,289
  • Real value (after 3% inflation)
    £12,121

How we calculated your result

Nominal future value = present × (1 + nominal)^years. Real future value uses the Fisher equation: (1 + real) = (1 + nominal) ÷ (1 + inflation). The result is in today’s purchasing power.

Official UK rules in simple English

  • Bank of England targets 2% CPI inflation.
  • UK uses CPI for ONS headline, CPIH (includes housing), and RPI (mortgages, rail fares — usually ~1pp higher).
  • Inflation-linked Gilts and NS&I Index-Linked Savings Certificates protect real value.

Common pitfalls to watch out for

  • ⚠ Don’t just subtract

    Real rate ≈ nominal − inflation only works for small numbers. Fisher equation is exact: at 10% nominal / 6% inflation, real rate is 3.77%, not 4%.

  • ⚠ Cash drag is real

    If your easy-access savings pay 3% and CPI is 4%, you’re losing 1% of purchasing power per year — even though the balance goes up.

  • ⚠ Past inflation ≠ future inflation

    UK averaged ~2.5% over 2000–2020, then spiked to 11% in 2022. Run multiple scenarios.

Frequently asked questions

CPI or RPI?
CPI for general planning (matches BoE target). RPI for things contractually linked to it — rail fares, some pensions, student loans (Plan 1).
What rate should I assume?
2–3% is the long-run BoE target. Stress-test with 4–5% to be safe.

Educational. Investment returns aren’t guaranteed.

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