Compound Interest
Calculator UK 2026
See how your UK savings and investments grow over time with the power of compound interest. Enter your details below to calculate total returns, interest earned, and year-by-year growth.
Final Balance
£249,974
Total Contributions
£106,000
Total Interest Earned
£143,974
Interest % of Balance
57.6%
What this means for you
Your £10,000 initial deposit plus £400/month at 7.0% compounded monthly over 20 years grows to £249,974. You contribute a total of £106,000, and compound interest earns you £143,974 — 57.6% of your final balance. That means compound interest earned you more than you put in.
Rule of 72: At 7.0%, your money doubles every ~10.3 years.
This is the textbook answer. Want to see this calculated against your actual accounts?
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How Compound Interest Works
Compound interest is interest earned on both your original investment and on the interest that has already been added to your balance. The formula is A = P(1 + r/n)^(nt) where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest compounds per year, and t is the number of years. When you also make regular contributions, each deposit begins earning its own compound interest from the moment it is added, creating a snowball effect that accelerates over time. The key insight is that growth is exponential rather than linear. In the early years the interest earned may seem modest, but as the balance grows, each compounding period adds a larger absolute amount of interest than the last.
For example, investing £10,000 initially plus £400 per month at 7% annual return compounded monthly over 20 years grows to approximately £214,000. Your total contributions would be £106,000, meaning compound interest earned you roughly £108,000 — more than you put in. This is the power of compounding over time. In the first year you earn about £1,000 in interest. By year 10, your annual interest exceeds £7,500. By year 20, you are earning over £14,000 per year in interest alone. Within an ISA wrapper, all of this growth is completely tax-free.
Simple Interest vs Compound Interest
Simple interest is calculated only on the original principal amount, so it grows linearly. If you invest £10,000 at 7% simple interest, you earn £700 every single year regardless of how long you hold the investment. After 20 years you would have £24,000 in total. Compound interest, by contrast, calculates interest on the growing balance each period. After year one you have £10,700, after year two £11,449 (because 7% of £10,700 is £749, not £700), and after year three £12,250. Each year the interest earned is larger than the last because the base amount keeps growing. After 20 years at 7% compounded annually, your £10,000 grows to approximately £38,697 — over £14,600 more than with simple interest. This is why consistent long-term investing in ISAs and pensions produces such remarkable results.
The Rule of 72
The Rule of 72 is a mental shortcut that tells you approximately how many years it takes for your money to double. Simply divide 72 by your annual interest rate. At 4% (a typical savings account), your money doubles in about 18 years. At 5%, roughly 14.4 years. At 7% (a common long-term equity return), about 10.3 years. At 10%, approximately 7.2 years. The rule works in reverse too: if you want to double your money in 10 years, you need a return of about 7.2% per year (72 / 10 = 7.2). This makes it straightforward to evaluate different investment options. For instance, a Cash ISA at 4.5% doubles your money in roughly 16 years, whilst a Stocks and Shares ISA averaging 7.5% doubles it in roughly 9.6 years — though with considerably more volatility along the way.
Compound Interest and UK Pensions
Workplace pensions are perhaps the best illustration of compound interest for most UK savers. Under auto-enrolment, the minimum total contribution is 8% of qualifying earnings (5% employee, 3% employer). Many employers offer more generous matching. With tax relief at your marginal rate (20% for basic rate, 40% for higher rate), the government effectively boosts your contributions. Consider a 25-year-old earning £40,000 per year contributing 8% (£267 per month including employer match) growing at 7% per year over 40 years to age 65. Their pension pot reaches approximately £717,000. Of that, only about £128,000 came from total contributions. The remaining £589,000 — more than 80% of the final balance — was generated by compound investment returns. Starting early matters enormously. A 35-year-old in the same scenario with only 30 years of compounding accumulates roughly £323,000 — less than half. The extra decade of compounding more than doubles the final balance without a single extra pound of contributions.
How To Use This Calculator
- Enter your initial deposit using the slider or type a value directly. This is the lump sum you are starting with, such as existing savings, an inheritance, or the balance of a maturing fixed-rate bond.
- Set your monthly contribution. This is the amount you plan to add regularly, for example from your salary each month. Even modest regular contributions make a significant difference over long time horizons thanks to compounding. The UK ISA allowance of £20,000 per year supports up to roughly £1,667 per month in tax-free saving.
- Choose your annual interest rate. Use 4.0-5.0% for a competitive savings account or Cash ISA, 7-8% for a diversified equity portfolio or Stocks and Shares ISA, or adjust to model different scenarios. Remember that higher returns come with higher risk.
- Select your investment period in years. Compound interest rewards patience — the longer the time horizon, the more dramatic the growth. Try comparing 10, 20, and 30 years to see the exponential effect.
- Choose a compounding frequency. Daily and monthly compounding are standard for UK savings accounts. Quarterly and annual compounding are common for fixed-rate bonds and pension returns. Review the results below, including the year-by-year growth table and Rule of 72 estimate.
❓ Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only applies to the original amount, compound interest means your money earns interest on interest. Over long time horizons this creates exponential growth, making it one of the most powerful forces in personal finance and wealth building.
How does compound interest work in the UK?
Compound interest works the same way globally, but UK savers encounter it in savings accounts (compounded daily or monthly by most banks and building societies), Cash ISAs, Stocks and Shares ISAs, workplace pensions, and SIPPs. UK savings rates in 2026 range from 4.0% to 5.0% for easy-access accounts, while long-term FTSE 100 returns have averaged 7-8% per year including reinvested dividends.
What is the ISA allowance and how does it help?
The annual ISA allowance is £20,000 per tax year. Any interest, dividends, or capital gains earned within an ISA are completely tax-free. You can split the allowance between a Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA. Maximising your ISA allowance each year means compound interest works harder because HMRC does not take a cut of your returns. Over 20 years, the tax savings alone can amount to thousands of pounds.
What is the Rule of 72?
The Rule of 72 is a quick formula to estimate how long it takes to double your money. Divide 72 by the annual interest rate. At 5%, your money doubles in about 14.4 years. At 7%, roughly 10.3 years. At 10%, about 7.2 years. It works best for rates between 2% and 15% and is a useful mental shortcut for evaluating savings accounts, ISAs, and pension returns without needing a calculator.
What are typical UK savings account interest rates?
As of early 2026, competitive UK easy-access savings accounts offer 4.0% to 5.0% AER. Fixed-rate bonds for one year range from 4.0% to 4.75%. Cash ISAs offer similar rates with the advantage of tax-free interest. NS&I (National Savings and Investments) products, backed by the Treasury, offer competitive rates including Premium Bonds, Income Bonds, and Green Savings Bonds. Always compare the AER (Annual Equivalent Rate), not the gross rate.
How does compound interest apply to UK pensions?
UK workplace pensions and SIPPs are excellent examples of compound interest in action. With employer contributions (minimum 3% under auto-enrolment) plus your own contributions (minimum 5%) and tax relief, pension pots grow significantly through compounding. A 25-year-old contributing £300 per month (including employer match and tax relief) at 7% growth could accumulate over £700,000 by age 65, with compound returns responsible for more than two-thirds of the final balance.
What returns can I expect from the FTSE 100?
The FTSE 100 has historically delivered total returns (capital growth plus reinvested dividends) of approximately 7-8% per year over the long term. However, returns vary significantly from year to year and even decade to decade. UK equity index funds and ETFs tracking the FTSE 100 or FTSE All-Share provide a low-cost way to access these returns. Past performance does not guarantee future results, and your capital is at risk.
What is the difference between AER and gross rate?
AER (Annual Equivalent Rate) shows the effective annual return accounting for how often interest compounds. The gross rate is the stated rate before compounding is factored in. A savings account paying 4.8% gross with monthly compounding has an AER of approximately 4.91%. When comparing savings products, always use AER as it gives a true like-for-like comparison regardless of compounding frequency.
How much will £10,000 grow with compound interest?
At 7% compounded monthly with no extra contributions: £10,000 becomes £20,097 after 10 years, £40,387 after 20 years, and £81,165 after 30 years. Adding £400 per month at 7% over 20 years turns total contributions of £106,000 into approximately £215,000. Within an ISA, all of this growth is completely tax-free.
Should I save in a Cash ISA or Stocks and Shares ISA?
It depends on your time horizon and risk tolerance. Cash ISAs offer guaranteed returns and capital protection, making them suitable for short-term savings (under 5 years) or emergency funds. Stocks and Shares ISAs offer higher potential returns (7-8% historically) but with volatility and the risk of losing capital. For long-term goals like retirement (10+ years), Stocks and Shares ISAs have historically outperformed cash significantly due to the power of compound growth on higher returns.
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