Compound Interest Calculator — UK
See how your savings and investments grow over time with compound interest — works for ISAs, savings accounts, and investment portfolios.
Enter investment details and click Calculate
Compound Interest Calculator UK — Make Your Money Work Harder
Compound interest is the most powerful force in personal finance — it's interest earned on your interest, creating exponential growth over time. This calculator shows how your savings, ISA contributions, or investment portfolio will grow, taking into account your starting amount, regular monthly contributions, interest rate, and compounding frequency. The longer your time horizon, the more dramatic the compound effect.
In the UK, Cash ISA rates have risen significantly following Bank of England base rate increases, with the best easy-access Cash ISAs offering over 4.5% AER in 2024. Stocks and Shares ISAs have historically returned 7%–9% annually over long periods, though returns vary year to year. The annual ISA allowance of £20,000 is one of the most tax-efficient ways to build long-term wealth in the UK — use this calculator to see what consistent contributions could achieve.
What is Compound Interest?
Compound interest means you earn interest not just on your original sum (the principal) but also on the interest you've previously earned. This creates a snowball effect — small amounts grow slowly at first, then accelerate dramatically over time. Albert Einstein reportedly called it the "eighth wonder of the world."
- The more frequently interest compounds (daily, monthly, annually), the faster your money grows. Most UK savings accounts compound monthly or annually.
- AER (Annual Equivalent Rate) is the UK standard for showing the true annual return including compounding — always compare savings accounts using AER, not the gross rate.
- Time is the most important factor in compound growth. Starting 10 years earlier often outweighs having a higher interest rate — use the calculator to see this in action.
- In a Stocks and Shares ISA, compound growth comes from reinvested dividends and capital growth. Past performance doesn't guarantee future returns, but UK stock market history shows compelling long-term compound growth.
How to Use This Calculator
- Enter your Initial Amount in pounds — the lump sum you're starting with (e.g., £5,000).
- Enter a Monthly Contribution — the amount you'll add each month (e.g., £200).
- Enter the Annual Interest Rate — use AER for savings accounts or an assumed return for investments (e.g., 5%).
- Set the Time Period in years (e.g., 20 years).
- Select the Compounding Frequency — monthly for most UK savings accounts.
- Click Calculate to see your projected future value, total contributions, and interest earned.
Compound Interest Formula
- A = Final amount
- P = Principal (starting amount)
- r = Annual interest rate (decimal)
- n = Compounding periods per year
- t = Time in years
- PMT = Monthly contribution
- Example: £5,000 starting, £200/month, 6% AER, monthly compounding, 20 years
- Result: £98,000+ — from £53,000 total contributions
Key Terms
- AER (Annual Equivalent Rate)
- The UK standard rate for savings accounts that shows the true annual return, accounting for how often interest is compounded. Always compare savings accounts using AER — a 4.8% gross rate compounded monthly equals a 4.9% AER. All UK banks must quote AER alongside the gross rate.
- ISA (Individual Savings Account)
- A UK tax-wrapper that shelters savings and investments from income tax and capital gains tax. The 2024/25 annual ISA allowance is £20,000. Types include Cash ISA, Stocks and Shares ISA, Lifetime ISA (LISA), and Innovative Finance ISA. Returns within an ISA compound completely tax-free.
- Lifetime ISA (LISA)
- A UK savings account for people aged 18–39, offering a 25% government bonus on up to £4,000 contributed per year (maximum £1,000 bonus/year). Used for buying a first home (up to £450,000) or retirement from age 60. The government bonus is itself invested and compounds — highly effective for long-term savers who qualify.
- Pension Compound Growth
- UK workplace and personal pensions benefit from compound growth plus tax relief. A basic-rate taxpayer contributing £80/month to a pension effectively invests £100 — the government adds 20% tax relief. Higher-rate taxpayers can claim an additional 20%–25% relief. Pension growth is tax-free until withdrawal.
- Real Return
- Your investment return after subtracting inflation. If your savings earn 4.5% AER but inflation is 3%, your real return is approximately 1.5%. For long-term financial planning, use the real return to understand whether your savings are growing in purchasing power, not just in nominal terms.
Tips for UK Savers and Investors
- Always use your ISA allowance (£20,000/year) before taxable savings accounts — compound growth within an ISA is entirely tax-free, which compounds the benefit significantly over decades.
- Consider a Lifetime ISA if you're under 40 — the 25% government bonus is an immediate guaranteed return before any investment growth.
- Compare savings accounts using AER, not the gross rate — the AER accounts for compounding frequency and gives a true like-for-like comparison.
- Start early — even small amounts invested in your 20s outperform large amounts invested in your 40s due to compound growth. Use the calculator to see the difference a decade makes.
- For Stocks and Shares ISAs, reinvesting dividends accelerates compound growth — choose accumulation funds over income funds in your growth years.
- Don't forget employer pension contributions — if your employer matches contributions, maxing out your pension to get the full match is an immediate 100% return before any compound growth.
Frequently Asked Questions
The most tax-efficient ways to compound wealth in the UK are: (1) Stocks and Shares ISA — up to £20,000/year, all returns tax-free; (2) pension — contributions get tax relief, all growth tax-free until withdrawal; (3) Lifetime ISA — 25% government bonus plus compound growth for under-40s. Starting as early as possible and reinvesting returns (using accumulation funds) maximises the compound effect.
For Cash ISAs and savings accounts, use the current AER (check best-buy tables — rates change frequently). For Stocks and Shares ISAs and pension funds, the UK stock market (FTSE All-World or global index funds) has historically returned approximately 7%–9% annually before inflation, or 4%–6% in real terms. These are long-term averages — actual annual returns vary widely. For conservative long-term planning, 5%–6% nominal is commonly used.
Significantly. Outside an ISA, savings interest is taxed at your marginal rate (though the Personal Savings Allowance gives basic-rate taxpayers £1,000 and higher-rate taxpayers £500 of tax-free interest). Within an ISA, all interest, dividends, and capital gains are tax-free indefinitely — this tax-free compounding dramatically boosts long-term growth. On a 20-year investment, tax drag outside an ISA can reduce final returns by 15%–30% for a higher-rate taxpayer.
It depends on your time horizon. For money you need within 5 years, a Cash ISA is safer — no risk of capital loss. For money you won't need for 5+ years, a Stocks and Shares ISA historically offers higher long-term returns despite short-term volatility. Many UK financial planners recommend a Stocks and Shares ISA for long-term goals (retirement, house deposit in 10+ years) and Cash ISA for medium-term goals.
Inflation erodes the purchasing power of your savings. If your Cash ISA earns 4.5% AER but UK CPI inflation is 3%, your real return is approximately 1.5%. To protect long-term savings from inflation, many UK advisers recommend holding a meaningful proportion in equities (via a Stocks and Shares ISA or pension) which have historically outpaced inflation over 10+ year periods. National Savings & Investments (NS&I) also offers inflation-linked products.
The Personal Savings Allowance (PSA) allows UK taxpayers to earn a certain amount of savings interest tax-free each year: £1,000 for basic-rate (20%) taxpayers, £500 for higher-rate (40%) taxpayers, and nothing for additional-rate (45%) taxpayers. With savings rates at 4%–5%, a basic-rate taxpayer needs around £20,000–£25,000 in savings before the PSA is exceeded and tax becomes payable on interest — making ISAs most valuable for larger savers.