Compound Interest Calculator
Compound interest pays interest on your interest, which is why a balance left alone grows faster each year than the one before. This calculator shows the final balance for any starting amount, rate, term and compounding frequency.
Formula
A = P(1 + r/n)^(nt)
- A = final amount
- P = starting amount
- r = annual rate as a decimal
- n = compounding periods per year
- t = years
£1,000 at 5% compounded yearly for 10 years: £1,628.89
The Compound Interest Formula
A = P(1 + r/n)nt
- A — the final amount
- P — the principal you start with
- r — the annual rate as a decimal
- n — compounding periods per year
- t — the number of years
£5,000 at 5%, compounded monthly for 10 years, grows to £8,235.
The Difference Compounding Makes
The same £5,000 at 5% for 10 years under simple interest reaches only £7,500. Compounding adds £735 without another penny being deposited.
The gap widens with time, which is why starting early matters far more than starting large. The same mechanism works against you on credit card balances.
Compounding Frequency
More frequent compounding produces a slightly higher return for the same headline rate, because interest starts earning sooner. Daily beats monthly, which beats annually, though the differences are small compared with the effect of the rate itself or the length of time invested.
In the UK, savings accounts quote AER, which already accounts for compounding frequency and is the figure to compare between products.
Quick Reference
| Years | At 3% | At 5% | At 8% |
|---|---|---|---|
| 5 | £1,159 | £1,276 | £1,469 |
| 10 | £1,344 | £1,629 | £2,159 |
| 20 | £1,806 | £2,653 | £4,661 |
| 30 | £2,427 | £4,322 | £10,063 |
Frequently Asked Questions
- What is the difference between simple and compound interest?
- Simple interest is calculated only on the original amount. Compound interest is calculated on the original amount plus all interest already earned, so growth accelerates over time.
- How often is interest compounded?
- It varies by product: daily, monthly, quarterly or annually. UK savings accounts quote AER, which standardises for frequency so you can compare like with like.
- What is the rule of 72?
- Divide 72 by the annual interest rate to estimate how many years it takes for money to double. At 6%, that is roughly 12 years. It is an approximation, but a useful mental check.
- Does compound interest work against me on debt?
- Yes, and aggressively at credit card rates. The same formula that grows savings is what makes a card balance paid at the minimum take decades to clear.