Compound Interest Calculator

How Compound Interest Works

Compound interest is often called the "eighth wonder of the world" — and for good reason. Unlike simple interest (which only earns on your original deposit), compound interest earns interest on your interest. Over long periods, this creates exponential growth.

The Formula

A = P × (1 + r/n)^(n×t), where P is your initial deposit, r is the annual interest rate (as a decimal), n is the compounding frequency per year, and t is the number of years.

Worked Example: £10,000 at 5% for 20 Years

With no monthly contributions and annual compounding:

After 10 years: £16,289 (£6,289 interest earned)

After 20 years: £26,533 (£16,533 interest earned)

After 30 years: £43,219 (£33,219 interest earned)

Notice how the interest accelerates — you earned £6,289 in the first decade but £16,686 in the third decade. That's compound growth in action.

The Power of Regular Contributions

Adding just £200/month to that same £10,000 at 5% transforms the result: after 20 years you'd have £108,687 — of which £58,687 is pure interest. Regular contributions plus compound growth is the foundation of long-term wealth building.

Compounding Frequency

Monthly compounding produces slightly more than annual compounding at the same rate, because interest is added to your balance more frequently. At 5% on £10,000 over 20 years: annual compounding gives £26,533; monthly gives £27,126 — a difference of £593. Daily compounding gives £27,181, barely more than monthly.

Related Calculators

The loan calculator shows compound interest working against you (on debt). Use the salary calculator to work out how much you can save each month, and the percentage calculator to compare interest rates.