Compound Interest Calculator
See how your savings grow with compound interest. Add regular monthly contributions to supercharge your returns.
Reviewed by Richard Ross · Last updated April 2026
How Compound Interest Calculator works
Compound interest formula
For a lump sum: FV = P × (1 + r/n)^(nt), where P is principal, r is annual rate, n is compounding periods per year, and t is years. For regular contributions: FV = PMT × [(1 + r/n)^(nt) − 1] ÷ (r/n).
The power of compounding
Compounding means earning interest on interest. Over long periods this creates exponential growth. £5,000 at 5% for 30 years grows to £21,610 with compound interest, vs £12,500 with simple interest. Monthly contributions amplify this significantly.
Compounding frequency
More frequent compounding produces slightly higher returns. Daily compounding earns marginally more than monthly, which earns more than annual. In practice, most UK savings accounts compound monthly or annually. The difference between monthly and daily is small.
Real vs nominal returns
This calculator uses nominal interest rates. Real returns (after inflation) are lower. At 2% inflation, a 4.5% nominal rate gives a 2.5% real return. For long-term planning, consider inflation-adjusted projections.
UK savings wrappers and compound growth
In the UK, the best vehicle for long-term compounding is an ISA (Individual Savings Account). The annual ISA allowance is £20,000 per person, and all growth is tax-free — meaning compound interest accumulates without HMRC taking a slice. Cash ISAs compound at the stated rate; Stocks & Shares ISAs compound based on investment returns, historically 7–9% annually over long periods. NS&I Premium Bonds also offer tax-free returns up to a £50,000 holding, though the prize-based model means returns are variable rather than guaranteed.
Common pitfalls to avoid
The biggest mistake savers make is withdrawing interest rather than letting it compound. Even small regular withdrawals substantially reduce the long-term balance. A second pitfall is leaving large sums in low-rate accounts: £20,000 sitting in a 1% account instead of a 4.5% account loses over £700 in interest per year. Check rates at least once a year — switching providers is free and straightforward for most UK savings accounts.
Worked example: £5,000 lump sum plus £200/month over 10 years
Source: HMRC — ISA rules and allowances, GOV.UK (gov.uk/individual-savings-accounts). Bank of England — base rate data (bankofengland.co.uk). NS&I — savings products (nsandi.com).
Further reading
The Cash ISA limit is dropping to £12,000 for under-65s from 6 April 2027 — changing how much compound growth you can shelter tax-free.
Read our 2027 ISA allowance guide →Further reading
The Lifetime ISA 25% withdrawal penalty costs more than the bonus you received — growth above 6.25% is what you need before you break even.
How the LISA withdrawal penalty really works →Frequently asked questions
What is compound interest?
Compound interest means earning interest on your interest, not just on your original deposit. Each period, interest is added to the balance, so the next period's interest is calculated on a larger amount. Over time this creates exponential growth.
How much will £10,000 grow in 10 years?
At 4.5% annual interest compounded monthly: £10,000 grows to £15,600. At 6%: £18,194. At 8%: £22,196. The rate and time period are the biggest drivers of the final amount.
What is the difference between compound and simple interest?
Simple interest: earned only on the original principal. Compound interest: earned on principal plus accumulated interest. Over 20 years at 5%, £10,000 becomes £20,000 simple vs £26,533 compound.
How do I maximise compound interest?
Start early (time is the biggest factor), maximise contributions, choose higher-rate accounts (ISAs, premium bonds, stocks and shares for long-term), and reinvest all interest rather than withdrawing it.
Is compound interest taxed in the UK?
Yes, unless held in an ISA. Interest outside an ISA counts towards your Personal Savings Allowance — £1,000 for basic-rate taxpayers, £500 for higher-rate. Anything above that is taxed at your marginal income tax rate. Holding savings in a Cash ISA eliminates this tax entirely, making the effective compound rate higher.
What is a realistic interest rate to use for long-term savings?
For Cash ISAs and savings accounts, 3.5–5% reflects current UK rates (2025). For Stocks & Shares ISAs or global equity funds, 6–8% is commonly used as a long-term real return assumption. Always use a conservative figure when planning — actual returns can be higher or lower.
What is the Rule of 72?
The Rule of 72 is a quick mental calculation: divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 4%: 72 ÷ 4 = 18 years. At 6%: 72 ÷ 6 = 12 years. At 9%: 72 ÷ 9 = 8 years. It is an approximation but accurate within 1–2 years for rates between 2% and 15%.
How does inflation affect compound interest?
Compound interest is usually quoted in nominal terms — before accounting for inflation. Real returns subtract inflation from the nominal rate. If your savings account pays 4.5% and inflation is 3%, your real return is approximately 1.5%. Over 20 years, £10,000 at 4.5% nominal grows to £24,117; but in today's purchasing power (at 3% inflation), that £24,117 is worth only approximately £13,380. Use the real rate when planning for future purchasing power.
Which UK savings account is best for compound interest?
Cash ISAs offer tax-free compounding — all interest is reinvested without HMRC taking a share, making the effective compound rate higher than equivalent taxable accounts once your Personal Savings Allowance (£1,000 basic rate, £500 higher rate) is used. Fixed-rate bonds currently pay 4.5–5.2% (2025) and compound at a guaranteed rate for the term. For long-term goals of 5+ years, a Stocks & Shares ISA provides compounding on investment returns, historically 7–9% annually for global equity funds.
Does compound interest work the same way for debt?
Yes — and it works against you. Credit card debt at 25% APR doubles in approximately 3 years (Rule of 72: 72 ÷ 25 ≈ 2.9). A £5,000 credit card balance at 25% with no repayments grows to £10,000 in about 3 years. This is why paying off high-interest debt before building savings is usually the mathematically superior strategy — the guaranteed return of eliminating 25% interest exceeds any savings account rate.