Compound Interest Calculator 2025/26

See how your savings and investments grow over time, with the cumulative benefit of compound interest.

This calculator provides estimates based on a fixed annual growth rate. Real investment returns vary and are not guaranteed. This is not financial advice — speak to a qualified financial adviser before making investment decisions.

How Compound Interest Works

Compound interest is what happens when your investment earnings generate their own earnings. Unlike simple interest — where you only earn on your original deposit — compound interest means you earn returns on both your initial amount and on all the interest that’s already been added.

This creates an exponential growth curve rather than a straight line. The effect is modest in the early years but becomes dramatic over longer time horizons. It’s why Albert Einstein reportedly called compound interest “the eighth wonder of the world” — though the attribution is probably apocryphal, the principle is anything but.

The Compound Interest Formula

The core formula is: A = P(1 + r/n)^(nt)

Where A is the final amount, P is the principal (starting amount), r is the annual interest rate as a decimal, n is the number of times interest compounds per year, and t is the number of years. When you add regular monthly contributions, each deposit compounds separately from the date it’s added, creating a geometric series.

For most savings accounts and investment platforms in the UK, interest compounds either daily or annually. The difference between daily and annual compounding is small — on a £10,000 deposit at 5% over 10 years, daily compounding gives you roughly £40 more than annual compounding.

Worked Examples

Example 1
Starting early with modest savings 

You invest £5,000 at age 25 and add £200 per month at a 7% annual return (a reasonable long-term equity average). By age 55 you’d have approximately £244,000 — of which only £77,000 is money you actually deposited. The remaining £167,000 is pure compound growth.

Example 2
Lump sum vs regular contributions 

A £50,000 lump sum at 5% for 20 years grows to roughly £132,600. Alternatively, investing £0 upfront but saving £416 per month (the same £50,000 spread over 10 years) at the same rate gives you approximately £64,500 after 10 years, then £105,000 after 20 years with no further contributions. The lump sum wins because time in the market matters more than timing.

Example 3
The cost of waiting 

Starting with £0 and saving £300/month at 6% from age 25 to 65 gives you approximately £597,000. Starting the same savings at age 35 — just 10 years later — gives you roughly £301,000. That decade of delay costs you nearly £300,000 in lost compound growth.

Common Mistakes to Avoid

  1. Confusing nominal and real returns. A 7% return sounds impressive, but if inflation is running at 3%, your real purchasing power only grows at roughly 4%. This calculator shows nominal returns — the actual number in your account — not inflation-adjusted figures.
  2. Assuming a fixed rate of return. In reality, investment returns fluctuate significantly year to year. A 7% average doesn’t mean you’ll get 7% every year — you might see +20% one year and -15% the next. Over long periods, the average tends to smooth out, but short-term volatility is real.
  3. Forgetting about fees. Fund management charges of 0.5–1.5% annually have a significant compounding effect in reverse. A £100,000 portfolio growing at 7% with a 1.5% fee effectively grows at 5.5% — over 30 years, that fee costs you roughly £150,000 in lost growth.
  4. Ignoring tax. Interest earned in standard savings accounts is subject to income tax above your Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate). Investing within an ISA wrapper eliminates this entirely — up to £20,000 per year.

The most powerful real-world application of compound interest is pension growth – see how your pot could grow with the pension calculator.

Compound interest works against you on a mortgage too – the mortgage calculator shows your total interest paid over the full term.

Frequently Asked Questions

What’s a realistic rate of return to use?

For cash savings accounts in 2025, 4–5% is typical. For a diversified global equity portfolio, historical long-term averages suggest 7–10% nominal returns annually, though past performance doesn’t guarantee future results. A balanced portfolio mixing equities and bonds might average 5–7%. Use the lower end of your estimate to be conservative.

What’s the difference between compound and simple interest?

Simple interest is calculated only on your original deposit. If you invest £1,000 at 5% simple interest for 10 years, you earn £50 per year — always £50, totalling £500. With compound interest, you’d earn £628.89 over the same period because each year’s interest earns interest the following year.

Should I use this for retirement planning?

This calculator gives a useful rough projection, but proper retirement planning should account for inflation, variable contribution levels, tax relief on pensions, employer matching, and changing risk profiles as you approach retirement. Use our Pension Calculator for a more tailored estimate, and consider speaking to a financial adviser for personalised advice.

How often does interest compound?

Most UK savings accounts compound annually or daily. Investment funds effectively compound continuously as the underlying assets change in value. For practical purposes, the compounding frequency makes relatively little difference compared to the rate of return and time horizon.