Compound Interest Calculator
See exactly how your money grows over time with compound interest. Enter your initial investment, monthly contributions and interest rate to get an instant breakdown of your final balance, total interest earned and how compound interest compares to simple interest.
What Is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. In simple terms — you earn interest on your interest. This creates a snowball effect where your money grows faster and faster over time.
It's often called the eighth wonder of the world — and the reason why starting to invest or save early makes such an enormous difference to the final outcome.
How Is Compound Interest Calculated?
The standard compound interest formula calculates the future value of an investment based on the principal, interest rate, compounding frequency and time period:
Example: £5,000 at 7% compounded annually for 20 years = £5,000 × (1.07)²⁰ = £19,348
The calculator above also accounts for regular monthly contributions, which significantly accelerates growth beyond the basic formula.
Compound Interest vs Simple Interest
Simple interest is calculated only on the original principal — it doesn't grow over time. Compound interest grows exponentially because each period's interest becomes part of the principal for the next period.
| Year | Simple Interest (7%) | Compound Interest (7%) | Difference |
|---|---|---|---|
| Year 1 | £5,350 | £5,350 | £0 |
| Year 5 | £6,750 | £7,013 | £263 |
| Year 10 | £8,500 | £9,836 | £1,336 |
| Year 20 | £12,000 | £19,348 | £7,348 |
| Year 30 | £15,500 | £38,061 | £22,561 |
Based on £5,000 initial investment at 7% per year, no additional contributions.
How Compounding Frequency Affects Growth
The more frequently interest compounds, the more you earn. Here's the difference on a £10,000 investment at 5% over 10 years:
| Compounding Frequency | Final Balance | Interest Earned |
|---|---|---|
| Annually | £16,289 | £6,289 |
| Quarterly | £16,436 | £6,436 |
| Monthly | £16,470 | £6,470 |
| Daily | £16,487 | £6,487 |
The Power of Starting Early
Time is the most powerful variable in compound interest. Here's what £200 per month invested at 7% annually looks like depending on when you start:
Where Compound Interest Works For You
- Savings accounts and ISAs — interest compounds on your balance, growing it passively over time
- Stocks and index funds — returns compound as dividends are reinvested and share prices grow
- Pensions — one of the most powerful compounding vehicles due to tax advantages and employer contributions
- Premium bonds and savings accounts — lower rates but risk-free compounding
FAQs
What is compound interest?
Compound interest is interest calculated on both your initial principal and the accumulated interest from previous periods. You earn interest on your interest, which causes your money to grow exponentially over time.
How is compound interest calculated?
The formula is A = P × (1 + r/n)^(n×t), where P is principal, r is the annual rate, n is compounds per year and t is years. The calculator above handles this automatically including monthly contributions.
What is the difference between compound and simple interest?
Simple interest is calculated only on the original principal. Compound interest grows faster because each period’s interest is added to the principal, earning more interest the following period.
How often should interest compound?
More frequent compounding earns slightly more — monthly compounds more than annually. However the difference is smaller than most people expect. The interest rate and time period matter far more.
Is compound interest good or bad?
It works both ways — for you on savings and investments, and against you on debt. It’s why investing early is so powerful, and why high-interest debt should be paid off as quickly as possible.
Is this calculator free?
Yes — completely free, no sign-up required.