Compound Interest Calculator
Calculate how your savings and investments grow with compound interest. Shows the power of “interest on interest” over time.
💡 Rule of 72 Insight
At 5% interest, your initial £10,000 would double to £20,000 in approximately 14.4 years without any additional contributions.
Growth Breakdown (Every 5 Years)
| Year | Deposited | Interest | Balance |
|---|
Enter your savings details to calculate compound interest growth.
Compound Interest Calculator
Use our free Compound Interest Calculator to see how your savings and investments grow over time. Compound interest means you earn “interest on interest” — your money grows exponentially rather than linearly. Perfect for pension planning, ISA investments, and long-term savings goals.
What Is Compound Interest?
Compound interest is interest calculated on both the initial principal AND the accumulated interest from previous periods. Unlike simple interest, which only applies to your original deposit, compound interest creates exponential growth because your interest earns interest too.
Simple vs Compound Example:
| Year | Simple Interest (@ 5%) | Compound Interest (@ 5%) |
|---|---|---|
| Year 1 | £10,500 | £10,500 |
| Year 5 | £12,500 | £12,763 |
| Year 10 | £15,000 | £16,289 |
| Year 20 | £20,000 | £26,533 |
After 20 years on £10,000 at 5%, compound interest earns £6,533 more than simple interest!
The Compound Interest Formula
The standard compound interest formula is:
A = P(1 + r/n)nt
Where:
- A = Final amount
- P = Principal (initial deposit)
- r = Annual interest rate (decimal)
- n = Number of times interest compounds per year
- t = Number of years
With regular monthly contributions:
A = P(1 + r/n)nt + PMT × [((1 + r/n)nt − 1) ÷ (r/n)]
Where PMT is your monthly contribution.
Rule of 72
The Rule of 72 is a quick way to estimate how long it takes for your money to double at a given interest rate:
Years to Double = 72 ÷ Interest Rate
| Interest Rate | Years to Double |
|---|---|
| 3% | 24 years |
| 5% | 14.4 years |
| 7% | 10.3 years |
| 10% | 7.2 years |
| 12% | 6 years |
Impact of Compounding Frequency
The more frequently interest compounds, the faster your money grows:
| Frequency | Times Per Year | After 20 Years @ 5% |
|---|---|---|
| Annually | 1 | £26,533 |
| Quarterly | 4 | £26,851 |
| Monthly | 12 | £27,126 |
| Daily | 365 | £27,234 |
Daily compounding earns £701 more than annual compounding over 20 years on £10,000 at 5%.
Common Investment Returns
Typical annual returns for different investment types:
| Investment Type | Historical Return (Annual) |
|---|---|
| UK Savings Account (Easy Access) | 0.5% – 2% |
| Fixed Term Deposit (2-5 years) | 2% – 4% |
| Cash ISA | 1% – 3% |
| UK Government Bonds (Gilts) | 2% – 4% |
| Global Stock Market Index Fund | 7% – 10% |
| S&P 500 (US Stocks) | 8% – 10% |
| Mixed Portfolio (60% stocks / 40% bonds) | 6% – 8% |
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on your original principal. Compound interest is calculated on both the principal AND accumulated interest. Over long periods, compound interest significantly outperforms simple interest due to the exponential effect of “interest on interest.”
How does compounding frequency affect returns?
More frequent compounding means faster growth. Daily compounding earns slightly more than monthly, which earns more than quarterly, which earns more than annual. The differences seem small annually but accumulate significantly over decades.
Is compound interest good for savings or debt?
Compound interest benefits savers and investors — your money grows faster over time. However, it harms borrowers with compound interest debt (credit cards, some loans). Always pay off high-interest debt before investing for maximum benefit.
What’s a realistic interest rate for my investments?
Savings accounts: 1-4%. Cash ISAs: 1-3%. Global stock index funds: 7-10% historically. Pension funds: 5-8%. Remember that past performance doesn’t guarantee future results, and stock markets have volatility.
Does compound interest beat inflation?
UK inflation averages around 2-3%. Savings accounts (0.5-2%) often don’t beat inflation. Investments (5-10%) historically do beat inflation over long periods. For real growth above inflation, consider index funds or diversified portfolios.
Should I contribute at the beginning or end of each month?
Beginning-of-month contributions earn interest for the full month, so they grow slightly more. Over 20 years, the difference can be hundreds or thousands of pounds depending on contribution size and interest rate.
Can I withdraw from compound interest investments?
Yes, you can withdraw anytime from most investments. However, withdrawing early reduces compounding time. For best results, leave investments untouched for 10+ years to maximise the exponential growth effect.
How much should I save for retirement?
Financial advisors typically recommend saving 10-15% of your income for retirement starting in your 20s. If you start later, increase to 20-30%. Use our Pension Calculator to project your retirement income.
Related Calculators
- → Pension Calculator — Project retirement savings with compound growth and tax-free lump sum
- → Mortgage Calculator — See how compound interest works against you with mortgage debt
- → Salary Calculator — Calculate how much you can afford to save monthly
- → Inflation Calculator — Adjust compound interest for UK inflation (future tool)