Compound Interest Calculator
Compound interest is simply interest earned on interest — rather than a fixed return calculated only on your original deposit each year, previous interest gets added to the balance and starts earning its own return too. Over short periods the difference from simple interest is small, but over years and decades it becomes the single biggest driver of how much a long-term saving or investment actually grows to. This calculator shows exactly how that compounding builds up under your own numbers.
Compound Interest Calculator
Calculate how compound interest grows your money over time.
Why Compounding Frequency Barely Moves the Needle
It is tempting to assume that daily compounding must be dramatically better than annual compounding at the same headline rate, but in practice the difference is much smaller than most people expect — a few pounds a year on a typical balance, not a transformative amount. What actually matters far more is the nominal rate itself and how long the money is left to grow, not whether interest compounds daily, monthly or annually. This calculator lets you compare compounding frequencies directly so you can see for yourself just how modest the difference really is, rather than treating it as a major factor worth chasing.
This is worth knowing before spending time hunting for an account specifically because it compounds daily rather than monthly — that search is very often not the best use of effort compared with simply finding the highest genuine nominal rate available, since the rate itself does far more work than the compounding frequency attached to it.
The Part Most People Underestimate: Time, Not Rate
Because compounding is exponential, time in the market tends to matter more than a modest difference in rate, particularly over longer periods. Money left to compound for twenty years at a lower rate can end up ahead of money compounding at a noticeably higher rate for only ten years, simply because compounding needs time to build momentum — the growth in the final years of a long period is considerably larger in absolute terms than the growth in the early years, even though the rate has not changed at all. This is part of why starting earlier, even with a smaller amount, is generally more powerful than waiting to start with a larger one.
This also explains why compound growth can feel slow and unremarkable for years before it suddenly looks dramatic — the underlying rate of growth has not changed, but a larger base balance means the same percentage growth produces a much bigger absolute number later on than it did at the start.
What Effective Annual Rate Actually Tells You
The effective annual rate (sometimes called AER) converts any compounding frequency into a single, directly comparable annual figure — useful because two accounts advertising the same nominal rate but compounding at different frequencies do not actually pay out identically. This calculator shows the effective rate alongside your result specifically so you can compare like with like, since comparing nominal rates alone can make one account look better than another when, once compounding frequency is accounted for, the actual difference is smaller or even reversed.
UK savings accounts are generally required to quote AER prominently for exactly this reason, making it the standard figure to compare across providers rather than relying on whichever headline rate is printed largest in an advert.
Seeing the Curve Bend
£10,000 saved at 5% with no further contributions grows to roughly £16,300 after ten years and around £26,500 after twenty — not double the ten-year figure, but considerably more, because the second decade compounds on a much larger base than the first. Adding a modest £100 monthly contribution to the same starting point changes the picture further still, since each new contribution also gets the full remaining time to compound, meaning contributions made early in the term end up contributing disproportionately more to the final total than contributions made near the end.
Where Tax Fits Into the Picture
Interest earned outside a tax-free wrapper counts toward your Personal Savings Allowance, and any interest above that allowance is taxed at your marginal rate — which matters increasingly as a balance compounds over time, since the interest earned each year grows too, potentially pushing a saver over their allowance in later years even if it was comfortably under in early ones. Money growing inside an ISA compounds completely free of this consideration, since all growth within the wrapper is tax-free regardless of how large it becomes. Our ISA Calculator models the same compounding shown here but within a tax-free ISA wrapper specifically, and our Regular Savings Calculator is worth checking if consistent monthly contributions, rather than a single lump sum, are more relevant to your situation.
Frequently Asked Questions
Does compound interest apply to debt as well as savings?
Yes — the same principle works in reverse on unpaid debt, particularly credit cards, where unpaid interest is added to the balance and itself starts accruing further interest, which is part of why credit card debt can grow quickly if only minimum payments are made.
Is a higher compounding frequency ever worth switching accounts for?
Generally not on its own — the difference between monthly and annual compounding at the same rate is usually too small to be the deciding factor. A meaningfully higher nominal rate is a far more significant reason to switch than compounding frequency alone.
What is the Personal Savings Allowance?
It is the amount of savings interest you can earn each tax year before it is taxed — currently £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, with additional-rate taxpayers receiving no allowance at all.
Does inflation affect compound interest results?
This calculator shows nominal growth in pounds, not adjusted for inflation. In real terms, if inflation is higher than your interest rate, the purchasing power of your balance can still fall even as the nominal figure grows.
Can I model regular withdrawals instead of contributions?
This calculator focuses on growth from a lump sum plus optional regular contributions. Modelling regular withdrawals from a growing balance is a different calculation, more relevant to drawing an income from savings than building them up.
Why does my bank quote a lower rate than this calculator suggests?
Advertised savings rates sometimes include a temporary bonus rate for an introductory period, after which the rate drops — always worth checking whether a quoted rate is guaranteed for the full term you plan to save for, or only for an initial period.
Important Information
This calculator provides an estimate for general information purposes only and does not constitute financial advice. It assumes a constant interest rate throughout the term, which real accounts rarely guarantee, and does not account for tax, fees or inflation unless stated. For advice specific to your circumstances, consult a qualified financial adviser. See our Disclaimer for further information.