Compound interest calculator

Compound interest is interest you earn not just on your original balance, but also on the interest you've already earned. Each compounding period, the interest gets added to the balance, and the next period's interest is calculated on that larger amount.

Over short periods the effect is modest, but compound interest accelerates the longer your money is invested. Albert Einstein is often (apocryphally) said to have called it “the most powerful force in the universe” — whether or not he ever did, the underlying point is real: small differences in rate or duration produce disproportionately large differences in final balance.

The standard compound interest formula is:

A = P × (1 + r/n)^nt

Where:

• A = final balance
• P = principal (starting balance)
• r = annual interest rate (as a decimal)
• n = compounding periods per year
• t = time in years

Worked example: invest £1,000 at 5% annual interest, compounded monthly, for 10 years. That's A = 1000 × (1 + 0.05/12)¹²⁰ = £1,647. The same £1,000 at 5% simple interest over 10 years would only reach £1,500 — compounding adds the difference.

Simple interest pays only on the original principal. If you invest £1,000 at 5% simple interest, you earn £50 every year, forever. After 10 years you have £1,500.

Compound interestpays interest on interest. Year 1 earns £50 (just like simple). Year 2 earns interest on £1,050, not just £1,000. Year 3 earns interest on whatever year 2 ended at, and so on. After 10 years at 5% compounded annually, you have about £1,629 — and compounded more frequently (monthly or daily), it's slightly higher again.

Most modern savings accounts, mortgages and credit cards use compound interest. Simple interest mostly appears in basic personal loans and some structured bonds.

Compound frequency is how often the interest is added to your balance. The annual rate is the same, but more frequent compounding produces a slightly higher final balance because each new compound period earns interest on the previous one.

For £10,000 at 5% APR over 10 years:

• Annually: £16,289
• Monthly: £16,470
• Daily: £16,486

The gap between annual and daily compounding is real but small at typical UK savings rates. It widens at higher rates and longer durations. UK savings accounts commonly compound either daily (added monthly) or monthly — check your account's terms for the specific arrangement.

Saving a house deposit is one of the most common reasons people use compound interest calculators. The maths matters because deposit timelines are usually measured in years, and small differences in interest rate compound into meaningful additional savings over a 3-5 year window.

Use the Goal mode in the calculator to enter your deposit target and target date — the calculator tells you whether your current plan gets you there, and if not, exactly how much extra you'd need to save each month to close the gap. It can also show you the date you'd reach the target at your current pace if you missed the deadline.

Most UK first-time buyers should also consider whether a Lifetime ISA (LISA) makes sense — the 25% government bonus on contributions up to £4,000/year is a higher effective return than any savings account, but with restrictions on use.

• Start simple. The default inputs (£5,000 at 5% monthly for 5 years) give you a working result immediately. Edit fields one at a time to see how each one changes the outcome.
• Add recurring deposits to model regular saving. Set the amount, frequency, and how long the recurring deposit continues. The annual increase field lets you model deposits that grow with inflation or pay rises.
• Turn on Goal mode to plan backwards.Instead of “what will I end up with?”, ask “what do I need to do to hit £X by Y date?” The calculator solves the inverse problem and tells you the extra monthly contribution needed.