Chelsea's current American owners have spent over £1bn on the team, but Terry insists fans will have to remain patient.
Terry told The Sun: “In terms of where we were 20 years ago, we're not there. But we're in a transition period.
“As ex-players and fans we need to be very patient with that. And I say that with a ‘very’ in front of it because I think we're three to five years off competing for the Premier League in my opinion.
“But it was always going to be a process. When you sign young players - and we lost a bit of experience with Thiago Silva and those guys last year - there was going to be a process.
“Even at the start of the season when things were going well, I expected a little drop from the players just because of that lack of experience and the game time.
"So I'm comfortable with the direction we're going in.
"Man City have been off it this year but they're still a top side.
"As long as we keep seeing progression and closing the gap towards Liverpool, Arsenal, Man City, because they've got to be the targets for everyone.”
The former Blues captain also said: “If there's one thing in the group you miss, it's probably a bit of experience.
“So adding that on with competing and adding better players to the squad every year, playing in this Club World Cup is going to give the club £52million. That helps towards buying another player, another striker maybe, or defender, goalkeeper, midfielder, whatever that looks like.
“We're a big club, that's what we've represented over the last 20 years. We want to be part of that.
“We want to be competing against the best sides. It goes back to this, the Fifa Club World Cup. You want to be competing against the best sides, the best teams, the best players and testing yourself. And Chelsea are used to that.
“It's the trophy that passed me by. One I didn't win. As players, you want to win all the trophies possible and test yourself against the best players and best teams.
“This gives you the opportunity to do that. People's perception of it is new and people don't like change. It's going to take time.”