Compound Interest Calculator
Compound interest means earning interest on both your original amount and previously earned interest. Add an optional monthly contribution to model savings or investing.
Related: Savings Interest · Compound Growth · CAGR
How the compound interest calculator works
Compound interest is interest calculated on both the original principal and the interest already accumulated — in contrast to simple interest, which is calculated on the principal alone. This causes savings or investments to grow exponentially rather than in a straight line.
The standard formula is A = P(1 + r/n)^(nt), where P is the principal, r is the annual interest rate as a decimal, n is the number of compounding periods per year, and t is the time in years. For example, £1,000 invested at 5% annual interest compounded yearly for 10 years grows to £1,628.89.
Compounding frequency matters: the more frequently interest is compounded, the higher the effective return. Monthly compounding produces a slightly higher result than annual compounding at the same headline rate. In the UK, ISAs, savings accounts, and investment accounts commonly compound monthly or annually. AER (Annual Equivalent Rate) lets you compare accounts on a like-for-like basis regardless of their compounding frequency.
Frequently asked questions
What is the difference between compound and simple interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any interest already earned, which means the interest itself earns interest. Over longer periods, compounding produces significantly higher returns than simple interest at the same rate.
How often does interest compound in UK savings accounts?
Most UK savings accounts compound monthly or annually. More frequent compounding produces a slightly higher effective return. However, when comparing accounts use the AER, which already accounts for compounding frequency — a 5% AER account yields exactly 5% per year regardless of how often it compounds internally.
What is AER?
AER stands for Annual Equivalent Rate. It is the effective annual interest rate that takes compounding frequency into account. UK banks and building societies are required to quote AER on savings products, making it the fairest way to compare different accounts.
How long does it take to double money at compound interest?
Use the Rule of 72: divide 72 by the annual interest rate to estimate the number of years to double your money. At 6% annual interest, 72 ÷ 6 = 12 years. At 4%, it takes approximately 18 years. The rule is a reliable approximation for rates between roughly 2% and 15%.