Calculators · 09

Compound Interest Calculator

This calculator shows how savings grow with compound interest from an initial deposit and optional monthly contributions. Interest accrues monthly at 1/12 of the annual rate and is added to the balance at the compounding frequency you choose. Rates on real accounts change over time, so treat the results as a projection rather than a guarantee.

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Overview

The compound interest calculator shows what a starting deposit and regular monthly saving grow into over time. Compound interest means you earn interest on your interest: each time interest is added to the balance, the next calculation is made on the new, larger amount. Enter your initial deposit, any monthly contribution, the annual interest rate and how long you'll save, and the calculator projects the final balance with a year-by-year breakdown of what you put in and what the interest added.

The effect is small at first and dramatic later — the classic snowball. In the early years most of the growth is simply your own deposits; by the later years the interest earned on accumulated interest can outpace the money you're adding. That's why starting early matters more than starting big, and why the year-by-year table is worth a look: it shows the exact crossover point where compounding starts doing the heavy lifting.

How it works

Enter your savings plan

The lump sum you're starting with (or zero), how much you'll add each month, and how many years you'll leave it to grow.

Set the rate and compounding

The annual interest rate and how often the account credits interest — monthly, quarterly or yearly. UK accounts advertise an AER precisely so different crediting frequencies can be compared.

Watch it compound

Interest accrues each month and is added at your chosen frequency, with contributions added monthly. You get the final balance, total deposited, total interest and the year-by-year growth.

Worked example

£1,000 to start, £100 a month at 5% for 10 years

Start with £1,000, add £100 every month and earn 5% a year, credited monthly. After 10 years you'll have deposited £13,000 — but the balance is £17,175, because compound interest added £4,175 on top.

Leave the same plan running for 20 years and the gap widens sharply: £25,000 deposited but roughly £43,816 saved — the interest earned in the second decade is several times that of the first, purely because the balance it compounds on is bigger.

Frequently asked questions

What is compound interest?

Interest calculated on both your original money and the interest already earned. Simple interest on £1,000 at 5% pays £50 every year; compound interest pays £50 in year one, £52.50 in year two, £55.13 in year three and so on, because each year's interest is earned on a growing balance. Over long periods the difference is enormous.

What does AER mean on UK savings accounts?

Annual Equivalent Rate — the rate an account would pay if interest were credited once a year, letting you compare accounts that credit interest at different frequencies on a like-for-like basis. An account paying monthly interest at a nominal 4.9% has an AER slightly above 5%, because each month's interest starts compounding immediately.

How much difference does the compounding frequency make?

Less than most people expect, at typical savings rates. £10,000 at 5% for 10 years grows to about £16,470 with monthly compounding versus £16,289 with yearly — a difference of under £200. The rate itself, the amount you save and the time you leave it matter far more than the crediting frequency.

Is interest on my savings taxed?

UK basic-rate taxpayers get a £1,000 Personal Savings Allowance (£500 for higher-rate, nil for additional-rate) — interest above that is taxable. Interest earned inside a cash ISA is always tax-free, and this calculator's figures are gross: if your interest will exceed your allowance, the after-tax growth will be somewhat lower.

Are these projections guaranteed?

No. The calculator applies the single rate you enter for the whole term, but real savings rates move with the Bank of England base rate, and fixed-rate deals eventually end. It also doesn't account for inflation, which erodes what the final balance will actually buy. Use it to compare scenarios rather than to predict a balance to the penny.

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