Compounding works like a snowball rolling down a hill. The bigger it gets, the more snow it picks up with each turn, so it grows faster and faster without doing anything differently. Money does the same thing: growth on top of growth, again and again. Your pot is the snowball: everything you have invested so far, plus everything it has already earned.

Every year, the pot is a little bigger, so the same rate of growth adds a bigger number than the year before. Nothing else is happening. There is no trick, and no special skill involved.

The same 7%, every single year
£200 invested every month, growing at a steady 7% a year
£0 £100k £200k £300k £400k £500k Yr 0 Yr 10 Yr 20 Yr 30 Yr 40 £35k £104k £244k £525k Same rate, smaller pot Same rate, larger pot
This is a hypothetical example, not a real result. It assumes £200 invested every month, growing at a steady 7% a year, before tax, fees and charges, which would make the real number smaller. It is not a forecast, and it is not based on any real product.

Because each year's growth joins the pot, money invested early gets more years of growth on growth than money invested later, like a snowball let loose sooner down the same hill. The gap this creates has nothing to do with how much was put in. It is entirely about how many extra years that money had to keep growing.

Same £200 a month. Same 7% return. Different start date.
How much you would have at 65, depending on when you started
£525k £360k £244k £162k Start 25 Start 30 Start 35 Start 40
This is a hypothetical example. It assumes you retire at 65, save the same £200 a month the whole time, and get a steady 7% a year. Waiting five years to start is not five years of missed saving. It is five years of missed growth on growth, and that adds up to a lot more money.
The first rule of compounding: never interrupt it unnecessarily.Charlie Munger
01

The same interest rate gives you a bigger number every year, not the same number.

That is because your pot keeps growing, not because the interest rate went up.

02

Money invested early earns growth for longer than money invested later, even if it is the exact same amount.

What matters is how many years that money spent growing, not how many pounds it started as.

03

A yearly fee shrinks your pot in exactly the way a return grows it.

A fee that looks tiny in any one year is quietly working against you, every single year after that.

This does not tell you what return you will actually get, or how much you should be saving each month. It shows why the same money grows faster the longer it is left alone, and why a fee you barely notice keeps costing you for as long as you pay it.