Simple Compound Interest Calculator

Simple interest is calculated only on the initial principal. For example, if you invest £1,000 at 5% simple interest, you earn £50 each year regardless of the accumulated amount.

Compound interest is calculated on both the initial principal and the accumulated interest. Using the same example, with 5% compound interest, you’d earn £50 in the first year, but in the second year, you’d earn 5% of £1,050, which is £52.50. This amount continues to grow each year as your balance increases.

Our Simple Compound Interest Calculator allows you to see the dramatic difference between simple and compound interest over time.

The more frequently interest is compounded, the more your money will grow. Common compounding periods include:

• Annually (once per year)
• Semi-annually (twice per year)
• Quarterly (four times per year)
• Monthly (12 times per year)
• Daily (365 times per year)
• Continuously (theoretical infinite compounding)

For example, £10,000 invested at 5% interest for 10 years would grow to:

• £16,288.95 with annual compounding
• £16,386.16 with monthly compounding
• £16,487.21 with daily compounding

You can experiment with different compounding frequencies using our Simple Compound Interest Calculator.

The Rule of 72 is a quick way to estimate how long it will take for your money to double at a given interest rate. Simply divide 72 by your annual interest rate to get the approximate number of years.

For example:

• At 4% interest, your money will double in about 18 years (72 ÷ 4 = 18)
• At 8% interest, your money will double in about 9 years (72 ÷ 8 = 9)
• At 12% interest, your money will double in about 6 years (72 ÷ 12 = 6)

While this is just an approximation, it’s a useful rule of thumb for quick calculations. For more precise results, use our Simple Compound Interest Calculator.

Regular contributions dramatically accelerate the growth of your savings due to compound interest. When you add money regularly, not only does your existing balance earn interest, but your new contributions also begin earning and compounding immediately.

Consider this example: Starting with £5,000 and investing at 7% annual interest for 30 years:

• With no additional contributions: £38,061
• With £100 monthly contributions: £122,709
• With £500 monthly contributions: £424,143

Our Simple Compound Interest Calculator allows you to input regular contributions to see how they affect your long-term results.

Inflation reduces the purchasing power of money over time. To determine your real rate of return, you need to subtract the inflation rate from your investment return.

For example, if your investment earns 7% annually but inflation is 2%, your real return is approximately 5%. This means that while your money is growing at 7%, its purchasing power is only increasing by about 5%.

To account for inflation in your financial planning:

• Aim for investment returns that exceed inflation
• Use “real return” (return minus inflation) in long-term planning
• Periodically adjust your savings goals to account for inflation

When using our Simple Compound Interest Calculator, consider adjusting your target interest rate to account for expected inflation.

Compound interest works against you when you’re borrowing money. When you take out a loan, interest is added to your balance, and if you don’t pay it off, you’ll begin paying interest on that interest as well.

This is especially common with:

• Credit cards when you carry a balance
• Student loans with deferred interest
• Mortgages with negative amortisation
• Payday loans and high-interest debt

For example, a £10,000 credit card balance at 18% APR would grow to £16,130 after just 3 years if you made no payments.

Our Simple Compound Interest Calculator can help you understand the true cost of carrying high-interest debt and demonstrate why paying off such debt should often be a financial priority.

Many financial products offer compound interest, though the rates and compounding frequencies vary:

• Savings accounts: Typically offer daily or monthly compounding, though interest rates are often low
• Fixed deposits/CDs: Offer higher rates than savings accounts with compounding that varies by provider
• Money market accounts: Similar to savings accounts but often with higher rates
• Bonds: Some bonds pay interest that can be reinvested, creating a compounding effect
• Dividend-paying stocks: When dividends are reinvested, they create a compounding effect
• Pension funds/SIPPs: Long-term retirement accounts that benefit greatly from decades of compound growth
• ISAs: Tax-advantaged accounts that allow your money to grow without tax on the interest

Use our Simple Compound Interest Calculator to compare how different interest rates and compounding frequencies affect your returns across various account types.

To make compound interest work harder for you:

• Start early: Time is the most powerful factor in compounding
• Invest regularly: Add to your investments consistently
• Reinvest earnings: Don’t withdraw interest, dividends, or gains
• Seek higher returns: Consider a diversified portfolio that may offer better long-term returns than savings accounts
• Minimise taxes: Use tax-advantaged accounts like ISAs and pensions
• Avoid high-interest debt: The same compounding that grows your savings works against you with debt
• Be patient: Compound interest produces its most dramatic results in the later years

Our Simple Compound Interest Calculator can help you visualise these strategies and see which ones will have the biggest impact on your financial future.

Taxes can significantly reduce the effective rate of compound interest. When you pay tax on interest earnings each year, that’s money that can’t continue to compound.

For example, if you earn 5% interest on an investment and pay 20% tax on that interest, your after-tax return is only 4%. Over 30 years, this difference can substantially impact your final balance.

To minimise the impact of taxes:

• Utilise ISAs, which allow tax-free growth
• Consider pension contributions, which offer tax relief and tax-free growth
• Make use of your Personal Savings Allowance
• For taxable accounts, consider investments that focus on capital growth rather than income

When using our Simple Compound Interest Calculator for taxable accounts, you may want to input your after-tax interest rate for more realistic projections.

APR (Annual Percentage Rate) is the simple annual interest rate without accounting for compounding.

APY (Annual Percentage Yield), also called Effective Annual Rate (EAR) in the UK, takes into account the effect of compounding and represents the true annual return.

For example, a 5% APR compounded monthly would result in an APY of approximately 5.12%.

When comparing financial products:

• For investments and savings, pay attention to the APY, as it shows what you’ll actually earn
• For loans and credit cards, look at the APR to understand the cost of borrowing

Our Simple Compound Interest Calculator can help you convert between APR and APY to better understand financial offers.