Compound Interest Calculator

Interest on interest

Simple interest pays only on the original sum; compound interest pays on the sum plus everything earned so far, so growth accelerates. £5,000 left at 5% a year becomes £5,250 after one year, then earns 5% on £5,250 — £262.50 — in year two. Over ten years at 5% compounded monthly, that £5,000 reaches about £8,235, of which £3,235 is interest the money earned for itself.

The formula is A = P(1 + r/n)^(nt), where P is the starting amount, r the annual rate, n the number of compounding periods per year and t the years. Regular contributions add a second engine: each monthly payment starts compounding from the month it goes in. The calculator compounds monthly and treats contributions as paid at each month's end.

Why starting early beats saving more

Time is the most powerful input in the formula because growth is exponential, not linear. Someone who saves £100 a month from age 25 to 35 and then stops will typically end up with more at 65 than someone who starts at 35 and saves £100 a month all the way to 65 — the early saver's money had thirty extra years of compounding, and the late saver's extra contributions cannot catch up. The year-by-year table above makes the same point visually: the balance curve bends upward, and the later years add far more than the early ones.

That is also why small rate differences matter so much over long terms. Over thirty years, £100 a month at 4% reaches roughly £69,000, while at 6% it reaches roughly £100,000 — the same contributions, a very different outcome, decided by two percentage points and three decades. Chasing the highest advertised rate matters less than starting, and staying invested, for a long time.

What the projection leaves out

The calculator holds the rate fixed, ignores tax, fees and inflation, and assumes contributions never stop. Real life does none of those things: savings rates change, investment returns swing year to year (sometimes negative), tax takes a share of interest above allowances, and inflation quietly reduces what the final figure buys. A projection of £100,000 in thirty years is worth far less in today's money if prices rise 2% a year — roughly £55,000 in today's purchasing power.

Use the result to compare plans and to feel the shape of compounding, not as a promise. For a real decision — a pension, an ISA, a mortgage overpayment — run the same numbers after tax and fees, and check whether the rate you entered is guaranteed or merely hoped for.