How to use the compound interest calculator
- Enter what you’re starting with. It can be £0.
- Add how much you’ll put in each month.
- Choose how many years, and a yearly growth rate. I’ve set it to 5% to start and capped it at 8%, because bigger numbers make exciting charts and disappointing reality.
- Read off what you could end up with, how much of it you paid in, and how much is growth. The bars show how it builds year by year.
What is compound interest?
Compound interest is interest on your interest. Each year your money grows, and the next year it grows on the bigger total, not just on what you put in.
Say you’ve got £1,000 earning 5% a year. After one year you have £1,050. In year two you earn 5% on £1,050, which is £52.50 rather than £50. That extra £2.50 is compounding. It looks tiny, but over 20 or 30 years it does most of the heavy lifting.
The calculator compounds monthly (5% a year becomes 5% divided by 12 each month), which nudges things up slightly. The same £1,000 shows as £1,104.94 after two years rather than £1,102.50.
How the maths works
The classic compound interest formula is:
A = P × (1 + r/n)^(n × t)
- A is what you end up with
- P is your starting amount
- r is the yearly rate as a decimal, so 5% is 0.05
- n is how many times a year it compounds (12 for monthly)
- t is the number of years
Adding money every month makes the formula messier, so the calculator simply runs month by month: grow the pot by one month of interest, add your monthly payment at the end of the month, repeat. Fees and inflation aren’t included, so the result is before costs and in future pounds.
Worked example: £200 a month for 20 years
Start with £1,000, add £200 a month and assume 5% growth for 20 years. The calculator gives:
| Amount | |
|---|---|
| You put in | £49,000 |
| Growth | £35,919 |
| What you could have | £84,919 |
About 42% of the final pot is growth you never paid in. Watch the yearly bars and you’ll see it speed up: £14,885 after 5 years, £32,703 after 10, £55,571 after 15 and £84,919 after 20.
Change the growth rate and you’ll see how much the assumption matters. At 3% the same plan gives £67,481, and at 7% it’s £108,224. Growth isn’t guaranteed, and real returns bounce around year to year rather than arriving as a neat 5%.
When you invest, your capital is at risk.
Why compound interest matters
Time does more work than money here. £200 a month for 30 years at 5% could reach £166,452 from £72,000 paid in. Give it 40 years and it could reach £305,204 from £96,000. Those extra ten years nearly double the pot.
It works against you too. Credit cards and loans compound the same way, which is why a balance you ignore can grow faster than you expect. Clear expensive debt before you start investing.
Albert Einstein is often quoted calling compound interest the eighth wonder of the world. There’s no evidence he ever said it, but the point stands: small, regular amounts grow into serious money given enough time.
What to do next
For compounding to work, your money needs somewhere to grow.
- Best stocks and shares ISAs: compare platforms for investing tax free.
- How to invest in index funds: the simple, low cost way most people start.
- Five ways to invest on a low income: you don’t need a big salary to get going.
- Best savings accounts: for money you’ll need in the next few years.
- FIRE calculator: see how long until compounding could make work optional.
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Compound interest FAQs
What’s the difference between simple and compound interest?
Simple interest is only paid on the money you put in. Compound interest is paid on your money plus the interest it’s already earned. £1,000 at 5% simple interest is £1,100 after two years; compounded once a year it’s £1,102.50.
How often does interest compound?
It depends on the account. Savings accounts usually pay interest monthly or yearly. Investments don’t pay a fixed rate, but when you reinvest the returns they compound in the same way. The calculator compounds monthly.
What growth rate should I use?
For cash, use your account’s interest rate. For investments, 5% is a sensible middle-of-the-road figure, and it’s worth trying a lower one too. The calculator won’t go above 8%. Growth isn’t guaranteed.
Does the calculator include inflation?
No. To see the result in today’s money, take your inflation guess off your growth rate. If you expect 5% growth and 2% inflation, enter 3%.
Does compound interest work on debt?
Yes, and that’s the dangerous side of it. Interest gets added to what you owe, then you pay interest on that too. Paying more than the minimum stops it snowballing.