Compound Interest Calculator
Compound interest is the mechanism by which interest is earned not just on your original principal but also on the interest already accumulated — commonly described as “interest on interest”. Over time, this snowball effect can transform modest regular savings into substantial wealth, making it one of the most powerful forces in personal finance. This calculator applies the standard compound interest formula to show you the final value of any lump-sum investment, the total interest earned, and the Effective Annual Rate (EAR) — which lets you compare accounts that compound at different frequencies on a like-for-like basis. It works equally well for cash savings accounts, stocks and shares ISAs, fixed-rate bonds, and general investment portfolios. For example, £10,000 invested at 5% per year compounded monthly for 10 years grows to £16,470 — £6,470 in interest on top of your original £10,000. Use the compounding frequency dropdown to model annual, quarterly, monthly, or daily compounding, and see exactly how much more frequent compounding adds to your returns over the long term.
How it's calculated
A = P × (1 + r / n)n × t
Where: P = principal, r = annual rate (decimal), n = compounding frequency per year, t = time in years, A = final amount.
Total interest = A − PTotal return % = (A − P) ÷ P × 100EAR = (1 + r / n)n − 1
Frequently Asked Questions
- What is the difference between compound and simple interest?
- Simple interest is calculated only on the original principal each period. Compound interest is calculated on the principal plus all previously accumulated interest, so your returns grow exponentially rather than linearly. Over long periods, the difference is substantial — £10,000 at 5% simple interest for 20 years returns £10,000 in interest; at 5% compounded annually it returns £16,533.
- What is the Effective Annual Rate (EAR)?
- The EAR (also called the Annual Equivalent Rate or AER) is the true annual return after accounting for compounding frequency. It allows you to compare accounts on equal terms — for example, a 5% rate compounded monthly has an EAR of 5.116%, because interest compounds twelve times rather than once.
- Does compounding frequency make a big difference?
- At typical savings rates (1–6%), the difference between monthly and daily compounding is small — often a few pence per £1,000. The impact becomes more noticeable at higher rates and over longer periods. The biggest difference is always between annual and monthly compounding, with diminishing returns as frequency increases beyond daily.
- Can I use this calculator for a Stocks and Shares ISA or cash ISA?
- Yes — enter your lump-sum investment as the principal and the expected annual growth rate. For a cash ISA, use the AER quoted by your provider. For a Stocks and Shares ISA, use a realistic expected return (historically 5–7% real return for a global index fund). Remember that investment returns are not guaranteed and past performance is not a reliable guide to the future.