Compound Interest
Calculator UK 2026

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 £250,000. Your total contributions would be £106,000, meaning compound interest earned you roughly £144,000 — more than you put in. This is the power of compounding over time. In the first year you earn about £900 in interest. By year 10 it is about £5,900 a year, by year 12 it passes £7,500, and by year 20 you are earning over £16,000 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% of their full salary (£267 per month including employer match) growing at 7% per year over 40 years to age 65. Their pension pot reaches approximately £705,000. Of that, only about £128,000 came from total contributions. The remaining £577,000 — 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 £328,000 — less than half. The extra decade of compounding more than doubles the final balance without a single extra pound of contributions.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.