Compound interest calculator
Compound interest is interest earned on interest already earned. Over a few years the effect is modest. Over a few decades it does most of the work. This shows how much of your final pot is your own money and how much the interest added.
Your savings
Your result
Final balance
£0.00
Your own money Interest
How the pot grows
The curve steepens over time. That bend is compounding doing the work.
How this is worked out
Each month the balance earns interest, then your contribution is added. The following month, interest is charged on the larger balance, including the interest already earned. That is what makes the line curve rather than run straight.
monthlyRate = annualRate ÷ 100 ÷ 12
each month:
balance = balance + (balance × monthlyRate)
balance = balance + monthlyContribution
With yearly compounding, the interest is worked out the same way but only added to the balance once every twelve months, so it earns nothing in the meantime. That is why the same rate produces slightly less with yearly interest than with monthly.
A worked example
Starting with £5,000, adding £200 a month at 4.5% for 20 years, you would pay in £53,000 of your own money and finish with roughly £90,000. Around £37,000 of that is interest, which is close to two fifths of the pot for doing nothing but leaving it alone.
Why time matters more than the rate
Compounding rewards patience disproportionately. The same monthly saving over 30 years rather than 20 does not produce half as much again; it produces considerably more, because the later years are working on a much larger balance. If you are choosing between saving more and starting sooner, starting sooner usually wins.
What this assumes
- The interest rate stays the same throughout. Real savings rates move, often quite a lot over twenty years.
- Contributions are made every month without fail, at the end of the month.
- No tax is deducted. Interest may be taxable depending on the account and your personal savings allowance. An ISA changes this.
- No fees or charges are taken.
- Nothing is withdrawn along the way.
Savings and investments are not the same thing
This calculator assumes a steady rate, which describes a savings account reasonably well. Investments do not behave like that: they rise and fall, sometimes sharply, and a projection based on an average return can look reassuring while hiding years of losses. Treat any investment figure here as illustrative only, and remember that past performance says little about the future.