How compound interest works
Compound interest means you earn interest not only on the money you put in, but also on the interest you've already earned. In the first few years the difference is small. Over decades it becomes the biggest part of the total, which is why the green part of the chart grows faster and faster.
How to use this calculator
Enter what you have now, how much you'll add each month, the yearly interest rate, and how long you'll leave it. Choose how often interest is added: savings accounts usually pay monthly or yearly. The inflation setting shows what the final amount would buy in today's prices, which is the number that really matters for planning.
What the calculator assumes
- The interest rate stays the same every year. Real savings rates change, and investment returns go up and down.
- Monthly additions are made at the end of each month.
- No tax is taken off. Interest in a cash ISA, and growth in a stocks and shares ISA or pension, is generally sheltered from UK tax. Outside these, tax may reduce your returns.
Ways to make compounding work harder
Start early. Time matters more than the rate: money invested for 30 years has three times as long to compound as money invested for 10. Keep adding. Regular monthly additions give each pound its own chance to compound. Watch the fees. A yearly fee compounds against you in exactly the same way. Our investment fees calculator shows how much a 1% fee costs over time.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is only paid on your original amount. Compound interest is also paid on interest you've already earned, so your balance grows faster each year.
Is monthly or yearly compounding better?
For the same advertised rate, more frequent compounding gives slightly more. The difference is small: at 5%, monthly compounding is worth about 5.12% a year compared with 5% for yearly.
What interest rate should I use?
For savings, use the rate your account pays. For investments, many people test a cautious figure such as 3% to 5% a year after fees, and remember real returns vary from year to year.
Why show the result in today's money?
Prices rise over time. £26,000 in 20 years won't buy what £26,000 buys today. Adjusting for inflation shows the real spending power of your savings.