£100 a month from 25 outperforms £300 from 40 at 7%

A saver who invests £100 a month from age 25 until 65 will have about £262,481 at a steady 7% annual return. A saver who invests £300 a month from 40 to 65 will have about £243,022 under the same return assumption. The example uses monthly contributions and a constant 7% annual return.

The 25-year-old contributes a total of £48,000 over 40 years; the 40-year-old contributes £90,000 over 25 years. After subtracting contributions, the earlier starter’s investment gain is roughly £214,481 and the later starter’s gain is roughly £153,022.

Compounding occurs when investment returns are reinvested so future returns are earned on a larger balance. A longer investment period allows more cycles of compounding, which increases the potential for growth on the same initial contributions.

The example assumes a constant 7% return for illustration. Market returns vary and are not guaranteed; short investment horizons and market volatility can reduce or reverse gains. Over long periods, stock market returns have frequently exceeded the interest rates on fixed-rate savings accounts, but past performance does not guarantee future results.

In the UK, Stocks and Shares ISAs shelter investment growth from income tax and capital gains tax. The current ISA annual allowance is £20,000, which equals about £1,666 per month. Using tax-efficient accounts affects the net amount investors can keep.

People who are unsure about their options can consult a regulated financial adviser for personalised guidance or use free services such as MoneyHelper for impartial information. The numerical example illustrates how the length of time invested affects outcomes under the stated assumptions.