Compound Interest Calculator

Compound interest is interest paid on interest. The standard formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal (your starting deposit), 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. The calculator handles four compounding frequencies (daily, monthly, quarterly, annually), with monthly being the most realistic for most UK savings accounts and stocks-and-shares ISAs.

A worked example: £10,000 deposited at 5% interest compounded monthly for 10 years grows to £16,470. The same deposit at 5% with annual compounding only reaches £16,289. The £181 difference is what compounding frequency buys you - meaningful but not earth-shattering. The far bigger lever is the time variable. The same £10,000 at 5% monthly compounding for 30 years becomes £44,677, roughly four and a half times the starting capital, and that is before any further deposits.

Simple interest pays out only on the original principal. £10,000 at 5% simple interest for 10 years pays £500 a year for 10 years, ending at £15,000. Compound interest reinvests the interest each period and pays interest on the new larger balance. The same £10,000 at 5% compounded monthly for 10 years ends at £16,470, a £1,470 difference. Over 30 years that gap blows out to about £29,000 vs £25,000 in difference - the compound effect literally accelerates with time.

Most modern UK savings accounts compound monthly, even when the rate is quoted as an annual figure (the AER, or Annual Equivalent Rate, is the standardised compound number you can compare across accounts). Personal loans and credit cards also compound, which is why a 19.9% APR credit card carrying a £3,000 balance grows by roughly £50 a month in interest if you only pay the minimum. Compounding is your friend on the saving side and your enemy on the debt side, and it works equally hard in both directions.

The calculator includes a monthly contribution field because the truth is most people do not get rich by depositing £10,000 once and waiting; they get there by adding £200 or £500 a month over decades. £200 a month at 7% compounded monthly for 25 years grows to about £162,000 - of which only £60,000 is your contribution and the other £102,000 is compound growth. The same scenario over 30 years balloons to £244,000, where time alone has roughly doubled the gain.

This is the maths behind the standard pension and ISA advice. The annual ISA allowance is £20,000, but most savers contribute closer to £100 to £400 a month into a stocks-and-shares ISA via direct debit. At a long-run real return of 5% to 7% (after inflation), regular contributions over 20-30 years compound into something that genuinely changes retirement options. For a more goal-focused projection use the [Pension Calculator](/pension-calculator) or [ISA Calculator](/isa-calculator); both feed the same compound formula but are framed around UK contribution limits.