Compound Interest Calculator
Our compound interest calculator shows how any lump sum and optional monthly contributions grow at a given interest or investment rate over any time horizon. Compound interest — earning returns on your returns — is the fundamental mechanism behind long-term wealth building, and even modest rates produce remarkable results over extended periods.
Compound Interest Calculator
Calculate how compound interest grows your money over time.
The Compound Interest Formula Explained
The formula for compound interest is: A = P × (1 + r/n)^(nt), where A is the final amount, P is the principal (starting amount), r is the annual interest rate as a decimal, n is the number of times interest compounds per year, and t is the number of years. For monthly compounding (n = 12), which is standard for most UK savings accounts, the formula applies the monthly rate 12 times per year.
A simple example: £5,000 at 5% per year, compounded monthly, over 15 years produces a final balance of approximately £10,535 — more than double the original. The £5,535 of interest earned is more than the original £5,000 invested. After 30 years the same investment grows to approximately £22,167 — 4.4 times the original sum, entirely from compound growth with no additional contributions.
Monthly Contributions: The Compounding Accelerator
Adding regular monthly contributions dramatically accelerates compound growth. £5,000 invested with £200 per month at 5% for 20 years produces approximately £92,500 — of which £53,000 are contributions and £39,500 is compound interest. Without the monthly contributions, the same £5,000 lump sum would have grown to only £13,600. The monthly saving is responsible for 86% of the final balance.
Frequently Asked Questions
Simple interest calculates returns only on the original principal — £10,000 at 5% simple interest earns £500 per year regardless of accumulated interest. Compound interest earns returns on both the principal and all accumulated interest — so in year two, you earn 5% on £10,500 (principal plus year one interest), not just on £10,000. Over time, the difference is substantial.
UK savings accounts typically compound daily or monthly. The more frequently interest compounds, the slightly higher the effective return. A 4.5% gross rate compounded daily has an AER of 4.60%; compounded monthly the AER is 4.59%. The difference is small but AER allows accurate like-for-like comparisons.
The Rule of 72 is a quick mental calculation for compound growth: divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 4% the doubling time is approximately 18 years; at 6% it is 12 years; at 9% it is 8 years. It is a useful approximation that works well for rates between 2% and 12%.
Yes — and the advantage is that compound growth within an ISA is tax-free. In a taxable account, interest income above your Personal Savings Allowance is subject to income tax, which reduces the effective return and therefore the power of compounding. Our ISA Calculator shows tax-free compound growth on any ISA balance.
Historical returns for global equity indices (such as the FTSE World Index) have averaged approximately 7–9% per year in nominal terms over long periods. Cash savings currently return 4–5%. Real returns (after inflation at approximately 2–3%) are lower in both cases. For projections beyond 10 years, using 5–7% for equities and 2–4% for cash in real terms gives a more conservative and realistic estimate. Our Investment Calculator models equity-style returns with different growth assumptions.
Enter a starting lump sum and monthly contribution, then set the interest rate and time period in years. The calculator shows the full compounding effect: interest is earned on the principal, then on the growing interest, then on the contributions and their accumulated interest. The chart shows how the growth curve accelerates over time — in early years the balance grows steadily; in later years it grows exponentially. Try increasing the monthly contribution by £50 and observe the long-term difference: small consistent increases in saving rate have disproportionate long-term effects through compounding. Also try changing the start date by five years to see the cost of delay — the opportunity cost of starting later is larger than most people intuit.
Important Information
This calculator is provided for general information and planning purposes only. It does not constitute financial or tax advice and should not be relied upon as such. Figures are indicative estimates based on simplified, publicly available criteria and stated assumptions. Actual results depend on your full circumstances. See our Disclaimer for further information.