Business Compound Interest Calculator
Cash sitting in a current account earns nothing. This calculator shows what the same money would be worth in a business savings or deposit account, so you can decide how much of your reserve to move and for how long. Use it for retained earnings you are not yet distributing, a corporation tax bill set aside for the year, or a cash buffer held for a planned purchase. For example, a £50,000 reserve at 4% compounded monthly grows to £54,074 over two years — £4,074 of interest that would otherwise not exist. The Effective Annual Rate lets you compare provider quotes on equal terms when they compound at different frequencies. One difference from personal saving: a company has no personal savings allowance, so every pound of interest is taxable profit. If you are modelling personal savings or an ISA, use the personal compound interest calculator in the savings section instead.
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.
- Is interest earned by my company taxable?
- Yes. Interest a company earns counts as non-trading income and forms part of its taxable profits, so it is charged at your corporation tax rate. There is no company equivalent of the personal savings allowance. At the 19% small profits rate, £4,074 of interest leaves £3,300 after tax; at the 25% main rate it leaves £3,056. The interest is still worth having — it is simply not tax-free.