Compound Interest Calculator
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See exactly how your savings or investment grows over time. Enter your principal, interest rate, and time period to get an instant breakdown.
See exactly how your savings or investment grows over time. Enter your principal, interest rate, and time period to get an instant breakdown.
Compound interest is interest calculated on both the original principal and the interest already accumulated. Unlike simple interest — which only applies to the original amount — compound interest means your interest earns interest, causing your money to grow at an accelerating rate over time. Albert Einstein reportedly called it the "eighth wonder of the world," and it is the fundamental principle behind long-term savings, pensions, and investment growth.
The compound interest formula is:
A = P × (1 + r ÷ n) ^ (n × t)
Where:
The total interest earned is simply the final amount minus the original principal.
Example 1 — Savings account
£10,000 at 5% annually for 10 years, compounded monthly
Final value: £16,470 — Interest earned: £6,470
Example 2 — Long-term investment
£1,000 at 7% annually for 20 years, compounded monthly
Final value: £4,038 — Interest earned: £3,038
Example 3 — The power of time
The same £1,000 at 7% for 40 years grows to £16,310 — over 16× the original amount. Time is the most powerful variable.
Yes — the more frequently interest compounds, the more you earn. On £10,000 at 5% for 10 years: annual compounding gives £16,289, while daily compounding gives £16,487 — an extra £198 simply by compounding more often. The difference grows larger with higher rates and longer time periods. Most UK savings accounts compound monthly; investment platforms often compound daily.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is
calculated on the principal plus any interest already earned, so your money grows faster
the longer it is invested.
How often does interest compound in a UK savings account?
Most UK savings accounts compound interest monthly or annually. Fixed-rate bonds often
compound annually or pay interest at the end of the term. Always check the product
terms as more frequent compounding means more growth.
What is an effective annual rate (EAR)?
The EAR is the actual annual return once compounding is taken into account. A 5% rate
compounded monthly has an EAR of approximately 5.12% — meaning you earn slightly more
than the headline rate suggests.
Can compound interest work against me?
Yes. On debts such as credit cards and loans, compound interest works against you —
unpaid interest is added to your balance, and you are then charged interest on the larger
amount. This is why carrying credit card debt is so costly.
What interest rate should I use?
Use the actual annual interest rate offered by your savings account, investment, or loan.
For investments, the long-term average return of the UK stock market has historically
been around 7–8% per year before inflation.