Compound interest calculator (UK)
Use our free UK compound interest calculator to find out how your weekly, monthly or annual savings and investments can increase.
To use the compound interest calculator, simply enter:
Your initial deposit
Your monthly contributions
Your preferred contribution frequency
The time period your money is invested for
The interest rate on your savings
The time period your money is compounded
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What is compound interest?
Compound interest is the interest earned on both the initial amount and any accumulated interest.
Compound interest allows savings to grow faster because interest is added to the principal regularly, increasing the base on which future interest is calculated.
How does the compound interest calculator work?
The compound interest calculator, which can also be used as a savings interest calculator, uses a standard mathematical formula to calculate the total amount of money you’ll have, including both your initial investment (known as the principal) and the interest earned over time.
The compound calculator works by taking into account four key factors:
The principal amount you start with
The interest rate
The time period your money is invested for
How often the interest is compounded (for example, yearly, monthly, or daily)
By entering these details, it can quickly show you how much your investment will grow.
Additionally, the calculator can reverse the process. If you know the final amount you want to achieve, it can help you figure out how much you need to invest, the rate of interest required, or how long it will take to reach your goal.
This makes it a useful tool for planning your savings and investments with confidence.
How do you calculate compound interest?
Compound interest is calculated using the formula A = P(1 + r/n)nt, where 'A' is the final amount, 'P' is the principal, 'r' is the interest rate, 'n' is the number of compounding periods per year, and 't' is the number of years.
You can also use this formula to set up a compound interest calculator in Excel or a Google Sheet:
A = P(1 + r/n)nt
In the formula
A = final amount
P = initial principal balance
r = interest rate
n = number of times interest is applied per time period
t = number of time periods elapsed
Calculating compound interest vs simple interest
What's the difference between compound interest and simply interest?
As the name implies, simple interest is calculated simply.
All you have to do is multiply the original (‘principal’) amount by the interest rate, to get the amount of interest paid per year.
The 'principal' amount is the initial amount of money you deposit or borrow.
You then multiply this figure by the number of years the money is invested (or loaned).
In practice, simple interest is rarely used in the world of investments.
Compound interest is more favourable to investors and works like the below..
The first year of interest is calculated as above: by multiplying the principal amount by the interest rate.
So £100,000 at 4% interest (100,000 x 1.04) will be around £104,000 at the end of the first year.
Now, this amount becomes the principle.
In the second year, you multiply £104,000 by the same interest rate (104,000 x 1.04) to get over £108,000.
Carry on doing this for each year of investment, and you’ll see how the amount of interest increases yearly as the overall investment grows.
After 10 years of this, you’d be looking at a final balance of around £149,000.
For the curious, you can work out compound interest using the equation [x(1+y)n - 1]-x where x is the original amount, y is the interest rate, and n is the number of years invested.
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Daily vs monthly compounding: which is better?
Although daily compounding interest can result in slightly higher returns compared to monthly or yearly compounding, the difference is relatively minor.
The key elements for maximising your savings growth are the annual equivalent rate (AER) and the duration of your savings.
The annual equivalent rate (AER) is the interest earned on a savings account or investment over one year, taking compounding into account. It's the standard rate used by UK providers, making it the most reliable figure for comparing accounts. A higher AER means a higher return.
How does compound interest help grow my investments?
Compound interest grows investments by reinvesting returns on top of previous returns, creating a snowball effect that accelerates over time.
The higher the number of compounding periods (i.e. years invested), the more cumulative interest you will generate.
Bear in mind that this only works to full effect if you leave the investment untouched, i.e. investing for growth.
If you are investing for income, you will be drawing out the interest regularly, so it will not compound effectively.
Dividend reinvestment is a form of compounding where dividend payments from shares are used to buy additional shares rather than taken as cash income. Over time this can significantly accelerate portfolio growth.
As with any investment, you risk losing your dividends if you choose not to cash them in.
However, carefully considered reinvestment in dividend growth stocks, or manual dividend reinvestment, can act as a ‘compounding accelerator’ to keep your money growing.
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“Investing early can yield many benefits, whether it’s giving investors time to ride out market volatility or taking advantage of compound interest.
If you plan to start investing, it can be hard to know where to start as you have many options, but it’s vital that you establish your financial goals, risk appetite and how long and where you want to invest your money."
How much compound interest will I earn on my investments?
If you've received a lump sum, inheritance, or just want to see how your current investments could grow, we've used our compound interest calculator to show how much interest you could earn on popular amounts below.
To make the calculations as accurate as possible, we've used the current best instant access savings interest rate of 4.5% as a benchmark.
What is the compound interest on £10,000?
| Years of growth | Interest earned | Total balance |
|---|---|---|
| 1 | £450 | £10,450 |
| 5 | £2,462 | £12,462 |
| 10 | £5,530 | £15,530 |
| 15 | £9,353 | £19,353 |
| 20 | £14,117 | £24,117 |
| 30 | £27,453 | £37,453 |
What is the compound interest on £50,000?
| Years of growth | Interest earned | Total balance |
|---|---|---|
| 1 | £2,250 | £52,250 |
| 5 | £12,309 | £62,309 |
| 10 | £27,648 | £77,648 |
| 15 | £46,764 | £96,764 |
| 20 | £70,586 | £120,586 |
| 30 | £137,266 | £187,266 |
What is the compound interest on £100,000?
| Years of growth | Interest earned | Total balance |
|---|---|---|
| 1 | £4,500 | £104,500 |
| 5 | £24,618 | £124,618 |
| 10 | £55,297 | £155,297 |
| 15 | £93,528 | £193,528 |
| 20 | £141,171 | £241,171 |
| 30 | £274,532 | £374,532 |
Why is it important to start investing early?
Starting to invest early gives compound interest more time to work, which significantly increases returns without requiring higher-risk investments.
Even if you’re in your 20s, it’s wise to start your pension early to make sure you can live comfortably even after you stop working.
Starting to invest your money in relatively low-risk assets 30-40 years before you plan to retire will allow your pension pot to grow steadily over time.
Use the free Unbiased Pension Calculator to find out if you’re saving enough and discover ways to boost your pension.
In the world of compound interest, time is money.
Early investment also means you don’t have to choose high-risk investments to see substantial returns, so you’ll be less likely to lose the principal amount.
If you don’t think about investing for retirement until later in life, you’ll have to consider higher-risk options to get the same kind of returns or accept lower returns from conservative investments.
How can a financial adviser help me grow my investments?
A compound interest calculator shows you potential growth, but a financial adviser can help you act on it, selecting the right investment products and timeframes to maximise compounding in practice.
This can be particularly challenging, as it relies on your specific investment objectives and long-term plans over the next 10 to 20 years.
Unbiased can quickly connect you to a financial adviser regulated by the Financial Conduct Authority (FCA).
We’ll find a professional perfectly matched to your needs. Getting started is easy, fast and free.
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