Compound interest means you earn interest on your interest as well as on what you paid in. Enter a starting amount, a monthly contribution, the yearly rate and the number of years to see the final balance, how much is interest, and the value in today’s money.
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How to use it
- Enter what you’re starting with and what you’ll add each month.
- Enter the yearly interest rate or expected return.
- Choose how often interest compounds: savings accounts usually compound monthly or yearly.
- Add an inflation rate to see what the final balance would be worth today.
The formula
For a single amount: A = P × (1 + r/n)n×t, where P is the starting amount, r the yearly rate, n the number of compounding periods a year and t the number of years. With monthly contributions, the calculator adds each payment at the end of the month and compounds the running balance.
Worked examples
- £5,000 plus £200 a month at 5% for 20 years (monthly compounding): about £95,770. You pay in £53,000; about £42,770 is interest.
- £10,000 left for 10 years at 5%: £16,470 with monthly compounding, or £16,289 with yearly compounding. More frequent compounding helps, but the rate and time matter far more.
Rule of 72: divide 72 by the yearly rate to estimate how many years it takes to double your money. At 6%, about 12 years.
Real returns and inflation
If prices rise 2.5% a year, £95,770 in 20 years buys about what £58,000 buys today. Enter an inflation rate to see this. For savings, compare the AER (annual equivalent rate) between accounts, because it already includes compounding.
Frequently asked questions
What is compound interest?
Interest calculated on both the money you put in and the interest already added, so growth speeds up over time.
How often should interest compound?
More often is slightly better: monthly beats yearly at the same rate. Compare accounts using AER, which accounts for compounding.
Are investment returns guaranteed?
No. Savings rates can change and investment returns can be negative in some years. Use a realistic, cautious rate.
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