How compound interest works
Compound interest is interest earned on both your original money and the interest already added. Over time this snowballs — the longer you save and the more often interest compounds, the faster your balance grows. Adding regular monthly or yearly contributions accelerates it further.
The calculator lets you set a starting amount, a regular contribution, an annual growth rate, the number of years and how often interest compounds. It then shows your final balance split into how much you paid in and how much is growth.
Worked example
Save £1,000 to start plus £100 a month at 5% a year for 10 years and you'd have about £17,240 — of which around £4,240 is interest on top of your £13,000 of deposits.
Why starting early beats saving more later
With compound growth, time is the most powerful ingredient — often more powerful than the amount you save or the rate you earn. Money invested in your twenties has decades to grow on itself, so even small, regular contributions can outgrow much larger sums started later. The earlier you begin, the more of your final balance comes from growth rather than from your own deposits.
The rule of 72
A quick way to picture compounding is the "rule of 72": divide 72 by your annual growth rate to estimate how many years it takes your money to double. At 6% a year, money doubles in roughly 12 years (72 ÷ 6); at 4%, about 18 years. It's an approximation, but a handy one for sense-checking a plan in your head.
Inflation and tax eat into growth
The figures here are a nominal illustration at a steady rate. In the real world, inflation reduces what your pot can buy, so your "real" return is roughly the growth rate minus inflation. Tax can also apply to interest and investment gains above your allowances — which is why many people save inside an ISA, where interest, dividends and gains are tax-free.
Saving little and often
Paying in a fixed amount each month — rather than one lump sum — spreads your contributions across good times and bad. For investments this is sometimes called "pound-cost averaging": you buy more units when prices are low and fewer when they're high, smoothing out the ups and downs. Consistency, sustained over many years, is what makes compounding do the heavy lifting.
Frequently asked questions
What is compound interest?
It's interest paid on your original savings plus the interest already earned. Because you earn “interest on interest”, your balance grows faster over time.
How is compound interest calculated?
Each period, interest is added to the balance, and the next period's interest is calculated on the new, larger balance. This tool simulates that month by month.
Does compounding monthly beat annually?
Yes, slightly. More frequent compounding adds interest sooner, so it earns a little more than the same annual rate compounded once a year.
How much would £100 a month grow to?
Starting from zero at 5% for 10 years, £100 a month grows to roughly £15,500 — about £3,500 of that is growth on £12,000 of contributions.
Is investment growth guaranteed?
No. This is an illustration at a constant rate. Real investment returns vary and can fall as well as rise.