Compound Interest Calculator: How UK Savings Grow in 2025

Compound interest turns £10,000 into £16,289 over 10 years at 5% annual interest - that's £6,289 earned. With simple interest, the same £10,000 would only reach £15,000 (£5,000 earned). Compound interest gives you £1,289 extra (25.8% more!) because you earn interest on previously earned interest, creating exponential growth rather than linear growth.

Albert Einstein allegedly called compound interest the "eighth wonder of the world" - those who understand it earn it, those who don't pay it. At current UK savings rates (4.52% easy access, 7% regular savers in December 2024), compound interest can significantly boost your wealth over time, especially when combined with regular monthly contributions.

This guide explains exactly how compound interest works, shows you real calculations using current UK rates, and reveals strategies to maximise your compound growth.

What is Compound Interest?

Compound interest is "interest on interest". Unlike simple interest (which only pays interest on your original deposit), compound interest pays interest on both your original deposit AND all previously earned interest.

The magic:

Year 1: Earn interest on £10,000
Year 2: Earn interest on £10,000 + Year 1 interest
Year 3: Earn interest on £10,000 + Year 1 interest + Year 2 interest
Each year, your interest earns its own interest

This creates a snowball effect where your money grows exponentially faster over time.

Calculate Your Compound Interest Growth →

Simple Interest vs Compound Interest: The Difference

Let's compare £10,000 invested at 5% for 10 years:

Simple Interest

How it works: Interest calculated only on original £10,000, every year

Year 1: £10,000 × 5% = £500 interest → Balance: £10,500
Year 2: £10,000 × 5% = £500 interest → Balance: £11,000
Year 3: £10,000 × 5% = £500 interest → Balance: £11,500
...
Year 10: £10,000 × 5% = £500 interest → Balance: £15,000

Total interest earned: £5,000 (£500 × 10 years) Final balance: £15,000

Compound Interest (Annual Compounding)

How it works: Interest calculated on growing balance, every year

Year 1: £10,000 × 5% = £500 → Balance: £10,500
Year 2: £10,500 × 5% = £525 → Balance: £11,025
Year 3: £11,025 × 5% = £551 → Balance: £11,576
Year 4: £11,576 × 5% = £579 → Balance: £12,155
Year 5: £12,155 × 5% = £608 → Balance: £12,763
Year 6: £12,763 × 5% = £638 → Balance: £13,401
Year 7: £13,401 × 5% = £670 → Balance: £14,071
Year 8: £14,071 × 5% = £704 → Balance: £14,775
Year 9: £14,775 × 5% = £739 → Balance: £15,513
Year 10: £15,513 × 5% = £776 → Balance: £16,289

Total interest earned: £6,289 Final balance: £16,289

The Compound Advantage

Factor	Simple Interest	Compound Interest	Difference
Final balance	£15,000	£16,289	+£1,289
Total interest	£5,000	£6,289	+£1,289 (25.8% more!)
Year 10 interest	£500	£776	Interest itself grew 55%!

Key insight: The longer your timeline, the bigger the compound advantage. After 20 years at 5%, simple interest gives you £20,000 whilst compound gives you £26,533 - a £6,533 difference (32.7% more!).

See Your Growth Over Time →

The Compound Interest Formula

The formula:

A = P(1 + r/n)^(nt)

Where:
A = Final amount
P = Principal (initial deposit)
r = Annual interest rate (as decimal, e.g., 5% = 0.05)
n = Number of times interest compounds per year
t = Time in years

Breaking Down the Formula with a Real Example

Scenario: £5,000 initial deposit at 4.5% interest compounded monthly for 5 years

Inputs:

P = £5,000
r = 0.045 (4.5% as decimal)
n = 12 (monthly compounding)
t = 5 years

Calculation:

A = £5,000 × (1 + 0.045/12)^(12×5)
A = £5,000 × (1 + 0.00375)^60
A = £5,000 × (1.00375)^60
A = £5,000 × 1.25127
A = £6,256.35

Result: Your £5,000 grows to £6,256 after 5 years Interest earned: £1,256 (25.1% return)

Compounding Frequency Matters

Using the same example but with different compounding frequencies:

Frequency	Final Amount	Interest Earned
Annually (n=1)	£6,225.31	£1,225.31
Quarterly (n=4)	£6,243.55	£1,243.55
Monthly (n=12)	£6,256.35	£1,256.35
Daily (n=365)	£6,262.75	£1,262.75

Key insight: More frequent compounding = slightly higher returns. Monthly compounding (typical for UK savings accounts) earns £31 more than annual compounding over 5 years.

Calculate Different Compounding Scenarios →

Real UK Savings Examples (Using Current 2025 Rates)

Example 1: Lump Sum in Easy Access Savings (4.52% AER)

Deposit: £5,000 Rate: 4.52% AER (annual equivalent rate - accounts for compounding) Time: 20 years Compounding: Monthly

Calculation:

A = £5,000 × (1 + 0.0452/12)^(12×20)
A = £5,000 × (1.003767)^240
A = £5,000 × 2.4507
A = £12,253.50

Result: £5,000 → £12,254 after 20 years Interest earned: £7,254 (145% return)

If inflation averages 2.5%: Real return = 4.52% - 2.5% = 2.02% real growth (still positive!)

Example 2: Regular Monthly Savings (£200/month at 7%)

This is where compound interest gets exciting!

Monthly deposit: £200 Rate: 7% AER (regular saver account) Time: 10 years Total deposits: £200 × 12 × 10 = £24,000

Using compound interest for regular contributions formula:

A = £200 × [((1 + 0.07/12)^(12×10) - 1) / (0.07/12)]
A = £200 × [((1.005833)^120 - 1) / 0.005833]
A = £200 × [(2.0078 - 1) / 0.005833]
A = £200 × 172.69
A = £34,538

Result: You deposit £24,000, end with £34,538 Interest earned: £10,538 (43.9% return on deposits!)

Breakdown by year:

Year	Total Deposited	Balance (with compound interest)	Interest Earned
1	£2,400	£2,486	£86
2	£4,800	£5,245	£445
3	£7,200	£8,299	£1,099
5	£12,000	£14,493	£2,493
10	£24,000	£34,538	£10,538

Notice how interest accelerates: Year 1 earns £86, but Year 10 adds over £2,000 in interest alone!

Example 3: Long-Term Wealth Building (£10k + £100/month for 30 years)

Initial lump sum: £10,000 Monthly additions: £100 Rate: 6% annual (stocks & shares ISA historical average) Time: 30 years Total deposits: £10,000 + (£100 × 12 × 30) = £46,000

Result: £46,000 deposited → £139,743 final balance Interest/returns earned: £93,743 (203.8% return!)

Power of time: Your money nearly triples from compound growth over 30 years. The longer you invest, the more dramatic the compounding effect.

Model Your Own Savings Scenarios →

The Rule of 72: Quick Doubling Time

The Rule of 72 is a mental shortcut to estimate how long it takes to double your money with compound interest.

Formula: 72 ÷ interest rate = years to double

Examples:

Interest Rate	Years to Double (72 ÷ rate)
3%	72 ÷ 3 = 24 years
4%	72 ÷ 4 = 18 years
5%	72 ÷ 5 = 14.4 years
6%	72 ÷ 6 = 12 years
7%	72 ÷ 7 = 10.3 years
8%	72 ÷ 8 = 9 years
10%	72 ÷ 10 = 7.2 years

Real example: £10,000 at 4.52% (current best easy access rate)

Rule of 72: 72 ÷ 4.52 = 15.9 years to double
Actual calculation: 15.7 years to reach £20,000
Very close!

Practical use: Quickly compare savings products

Regular saver at 7%: Doubles in ~10 years
Easy access at 4.5%: Doubles in ~16 years
Difference: 6 years! (60% longer with lower rate)

Where Compound Interest Applies

Compound interest isn't just for savings accounts. It works across many financial products:

1. Savings Accounts (Most Common)

All UK savings accounts use compound interest:

Easy access savings (currently ~4.5-5%)
Regular saver accounts (currently ~7%)
Fixed-term bonds (1-year ~4.5%)
Notice accounts (30-120 days notice)

Compounding: Usually monthly, credited annually or monthly

2. Cash ISAs

Individual Savings Accounts (tax-free):

Same rates as regular savings (~4.5% currently)
Advantage: Interest is tax-free (no Personal Savings Allowance used)
Compounding: Monthly

Annual ISA allowance: £20,000 (2025/26)

3. Stocks & Shares ISAs / Investment Accounts

Compound through reinvested dividends and capital growth:

Historical average: ~7-10% annual returns (but volatile!)
Dividends automatically reinvest (compound)
Higher risk than cash savings

Example: £10,000 at 8% average for 20 years = £46,610 (£36,610 growth!)

4. Bonds (Gilts, Corporate Bonds)

Interest (coupon) can be reinvested to compound:

UK government bonds (gilts): 3-5% currently
Corporate bonds: 4-8% (higher risk)

5. Pension Investments

Most powerful compounding due to tax relief + time:

Workplace pension: Employer contributions + tax relief compound
SIPP: Self-invested personal pension compounds tax-free
Decades of compounding create massive pension pots

Example: £200/month for 40 years at 6% average = £394,000 (deposits: £96,000)

Compare Savings and Investment Options →

Maximising Compound Interest Growth

1. Start Early (Time is Your Greatest Asset)

Comparison: Two savers both saving £200/month at 6%

Saver A: Starts age 25, stops age 35 (10 years)

Total deposited: £24,000
Balance at 65: £243,000 (compound growth for 40 years, even after stopping deposits)

Saver B: Starts age 35, continues until 65 (30 years)

Total deposited: £72,000
Balance at 65: £200,000

Result: Saver A deposits £48,000 less but ends with £43,000 MORE! Starting 10 years earlier is worth more than 20 extra years of saving.

Lesson: The earlier you start, the more time compound interest works for you. Every year delayed costs exponentially.

2. Make Regular Contributions (Not Just Lump Sums)

£10,000 lump sum vs £200/month for 5 years at 5%:

Lump sum approach:

Initial: £10,000
After 5 years: £12,763
Interest: £2,763

Monthly contributions approach:

Total deposited: £200 × 60 = £12,000
After 5 years: £13,595
Interest: £1,595

Wait, that seems worse? But consider you only need £200 upfront (not £10k), and you can combine both!

Combined: £10k + £200/month:

After 5 years: £26,358
Interest: £4,358 (much better!)

3. Reinvest All Returns (Don't Withdraw Interest)

Crucial for compound growth: Interest must stay in the account to earn its own interest.

Example: £10,000 at 5% for 10 years

Scenario A: Reinvest (compound):

Final balance: £16,289

Scenario B: Withdraw interest yearly (simple):

Withdraw £500/year × 10 years = £5,000 withdrawn
Final balance: £10,000 (principal only)
Lost out on £6,289 compound growth!

Lesson: Never withdraw interest if you want compound growth. Let it accumulate.

4. Maximise Interest Rates

Small rate differences create large compound differences:

£10,000 invested for 20 years:

3% = £18,061 (£8,061 interest)
4% = £21,911 (£11,911 interest)
5% = £26,533 (£16,533 interest)
6% = £32,071 (£22,071 interest)

1% extra rate = £4,000-6,000 extra over 20 years!

How to maximise rates:

Use regular savers for maximum rates (currently ~7% vs 4.5% easy access)
Switch savings accounts when rates drop
Compare best-buy tables monthly (Moneyfacts, MoneySavingExpert)
Don't stay with big banks (often pay lowest rates)

5. Use Tax-Efficient Accounts (ISAs)

Tax drags down compound growth:

Scenario: Higher rate taxpayer (40% tax on savings interest)

£20,000 at 5% for 10 years
Gross interest: £12,578
Tax at 40% on interest over £500 PSA: £4,831 tax
Net interest: £7,747

With Cash ISA (tax-free):

Same £20,000 at 5% for 10 years
Tax: £0
Net interest: £12,578

Tax saved: £4,831 (62% more interest kept!)

ISA allowance: £20,000/year - always use it if you can.

Calculate Your ISA vs Taxable Returns →

Frequently Asked Questions

What is compound interest?

Compound interest is interest calculated on both your original deposit and all previously earned interest. Unlike simple interest (which only pays on the original amount), compound interest creates exponential growth. £10,000 at 5% for 10 years grows to £16,289 with compound interest vs £15,000 with simple interest - £1,289 extra (25.8% more).

How do I calculate compound interest?

Use the formula A = P(1 + r/n)^(nt), where P is initial amount, r is annual rate (as decimal), n is compounding frequency per year, and t is years. Example: £5,000 at 4.5% monthly compounding for 5 years = £5,000 × (1 + 0.045/12)^(12×5) = £6,256. Our calculator does this instantly.

What is the Rule of 72?

Divide 72 by your interest rate to estimate years to double your money. At 6%, 72 ÷ 6 = 12 years to double. At 4%, 72 ÷ 4 = 18 years. Quick mental maths to compare savings products. £10,000 at 6% becomes £20,000 in 12 years, while at 4% it takes 18 years (50% longer!).

What is the difference between simple and compound interest?

Simple interest only calculates on your original deposit. Compound interest calculates on your growing balance including previous interest. On £10,000 at 5% for 10 years: simple gives £15,000 (£500/year every year), compound gives £16,289 (interest grows each year). Compound is always better for savers.

How often does interest compound?

Most UK savings accounts compound monthly (interest calculated monthly but may be paid annually). Some compound daily. More frequent compounding = slightly higher returns. Monthly compounding at 4.5% over 5 years earns £31 more than annual compounding on £5,000. Check your account terms.

Where can I earn compound interest?

All UK savings accounts (easy access, regular savers, fixed bonds), Cash ISAs, Stocks & Shares ISAs (dividend reinvestment), bonds, and pensions. Current best rates: regular savers 7%, easy access 4.52%, Cash ISAs 4.52%. Even premium bonds use compound mathematics for prize draws, though prizes don't compound.

How can I maximise compound interest growth?

Start early (time is crucial), make regular contributions (£200/month beats £10k lump sum over time), reinvest all interest (never withdraw), maximise interest rates (regular savers currently 7% vs 4.5% easy access), and use tax-efficient accounts (ISAs save 20-40% tax). Even 1% higher rate creates thousands in extra returns over 20+ years.

Is compound interest the same in all savings accounts?

Yes, all UK savings accounts use compound interest, but the rate and frequency vary. Regular savers currently offer ~7% AER, easy access ~4.5%, fixed bonds ~4.5%. "AER" (Annual Equivalent Rate) accounts for compounding frequency, allowing direct comparison. A 4.5% AER with monthly compounding gives the same return as 4.594% simple annual interest.

Related Resources

UK Savings Calculator - Model your compound interest growth
ISA vs Regular Savings Guide - When ISAs beat regular savings
Save £10k in 12 Months - Practical savings challenge
Income Tax Calculator - Understand tax on savings interest

Official Sources:

Bank of England: Savings Rates Historical Data
Moneyfacts: Best Savings Rates
FCA: Understanding Savings Interest

Last updated: 9 January 2025 Disclaimer: Examples use current UK savings rates: easy access 4.52%, regular savers 7%, Cash ISAs 4.52% (December 2024). Rates change frequently - always check current best-buy tables. Compound interest calculations assume constant rates, but actual rates vary. Past performance doesn't guarantee future returns, especially for investments. Inflation reduces real returns (current CPI 2.5%). Tax treatment depends on personal circumstances. UK Calculator is not a financial adviser.