Compound Interest Calculator
Calculate how your savings or investments grow over time with compound interest.
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What Is a Compound Interest Calculator?
Compound interest earns returns on both your original deposit and all previously accumulated interest. This calculator shows the projected value of savings or investments over any time period. Enter your starting amount, rate, and compounding frequency to see year-by-year growth.
The difference between simple and compound interest grows dramatically over time. £10,000 at 5% simple interest earns £5,000 in 10 years. The same amount compounded monthly earns £6,470. Add regular contributions and the gap widens further.
Select daily, monthly, quarterly, or yearly compounding to compare how frequency affects your final balance. Higher compounding frequency produces a slightly larger return on the same principal and rate.
How Do You Use This Compound Interest Calculator?
Enter your initial deposit, annual interest rate, compounding frequency, and time period. Optionally add regular monthly contributions. Click Calculate to see your projected balance.
- Enter your initial deposit or investment amount in pounds.
- Set the annual interest rate as a percentage.
- Choose the compounding frequency (daily, monthly, quarterly, or yearly).
- Enter the investment period in years.
- Add any regular monthly contributions if applicable.
- Click Calculate to view the projected balance and interest earned.
- Compare results by adjusting the compounding frequency or rate.
How Does the Compound Interest Calculator Formula Work?
The formula used: A = P(1 + r/n)^(nt) where P = principal, r = annual rate, n = compounds per year, t = years
The compound interest formula calculates the future value of an investment that earns interest on accumulated interest.
A = P(1 + r/n)^(nt)
A is the final amount. P is the initial principal. r is the annual interest rate as a decimal. n is the number of times interest compounds per year. t is the number of years. For monthly contributions, the future value of an annuity formula is added: PMT × [((1 + r/n)^(nt) - 1) / (r/n)].
What Are Some Example Calculations?
£10,000 at 5% compounded monthly for 10 years with £200/month contributions: Final balance = £44,677. Total contributions = £34,000. Total interest earned = £10,677.
£5,000 lump sum at 4% compounded yearly for 20 years with no contributions
A = 5000 × (1 + 0.04/1)^(1×20) = 5000 × 1.04^20 = 5000 × 2.1911
Final balance = £10,955.62. Total interest earned = £5,955.62.
£1,000 initial deposit at 6% compounded monthly for 30 years with £100/month contributions
Lump sum: 1000 × (1 + 0.005)^360 = £6,022.58. Contributions: 100 × [(1.005^360 - 1) / 0.005] = £100,451.50
Final balance = £106,474.08. Total contributions = £37,000. Total interest earned = £69,474.08.
£25,000 ISA at 3.5% compounded daily for 5 years with no contributions
A = 25000 × (1 + 0.035/365)^(365×5) = 25000 × 1.0000959^1825
Final balance = £29,766.53. Total interest earned = £4,766.53.
When Should You Use a Compound Interest Calculator?
Use this calculator when planning long-term savings goals such as retirement funds, ISAs, or children's savings accounts. Input your current balance and expected rate to project future growth. Test how increasing monthly contributions by £50 or £100 accelerates your target.
Run this calculator to compare savings accounts from different providers. Enter the same deposit amount with each provider's quoted rate and compounding frequency. The one with the highest projected balance after your target period offers the best effective return.
What Do These Terms Mean?
How Do the Options Compare?
| Compounding Frequency | Times per Year | £10,000 at 5% after 10 Years | Interest Earned |
|---|---|---|---|
| Yearly | 1 | £16,288.95 | £6,288.95 |
| Quarterly | 4 | £16,436.19 | £6,436.19 |
| Monthly | 12 | £16,470.09 | £6,470.09 |
| Daily | 365 | £16,486.65 | £6,486.65 |
What Are the Best Tips to Know?
- Start contributing as early as possible — time in the market matters more than timing the market.
- Increase monthly contributions by even £25 per month to see a significant long-term difference.
- Compare accounts by entering each provider's rate and compounding frequency side by side.
- Use the Rule of 72 for quick estimates: divide 72 by the interest rate to find doubling time.
- Reinvest dividends and interest rather than withdrawing to maximise compounding.
What Mistakes Should You Avoid?
- Using the gross interest rate instead of the AER when comparing savings accounts.
- Forgetting that inflation erodes the real value of future returns.
- Assuming past investment returns will continue at the same rate in the future.
- Overlooking fees and charges that reduce the effective rate of return.
- Confusing compounding frequency with contribution frequency.
Frequently Asked Questions
What is compound interest?
Compound interest is interest earned on both your original principal and on previously earned interest. Over time, this creates exponential growth, making your money grow faster than with simple interest.
How often should interest compound?
More frequent compounding produces slightly higher returns. Daily compounding earns more than monthly, which earns more than yearly. The difference is most noticeable with larger sums over longer periods.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual interest rate. At 6%, your money doubles in approximately 12 years.
How does compound interest differ from simple interest?
Simple interest is calculated only on the original deposit. Compound interest is calculated on the deposit plus all previously earned interest. Over 20 years at 5%, £10,000 earns £10,000 with simple interest and £16,533 with monthly compounding.
What is the best compounding frequency for savings?
Daily compounding produces the highest return. On £10,000 at 5% over 10 years, daily compounding earns £6,486.65 versus £6,288.95 for yearly compounding — a difference of £197.70.
Does compound interest work on debt too?
Yes. Credit cards and some loans charge compound interest on outstanding balances. This means unpaid interest gets added to the debt, and you pay interest on that interest. Pay off high-interest debt before focusing on savings.
How much will £10,000 be worth in 20 years?
At 5% compounded monthly, £10,000 grows to £27,126.40 in 20 years. At 7%, it grows to £40,387.39. Add £200/month contributions at 5% and the total reaches £109,414.26.
What is AER and why does it matter?
AER (Annual Equivalent Rate) shows the true yearly return after accounting for compounding frequency. A 4.9% rate compounded daily has a higher AER than a 5.0% rate compounded yearly. Always compare accounts using AER.
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