Compound Interest Calculator: How UK Savings Grow in December 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.

December 2025 brings exceptional savings opportunities with best easy access rates at 5.00% (Cahoot) and regular savers offering 7.50% (Principality) - rates not seen since before the 2008 financial crisis. With CPI inflation at 3.6% (October 2025), best easy access accounts deliver real returns of +1.4%, making cash savings competitive again after years of negative real returns.

This comprehensive guide explains exactly how compound interest works, shows you real calculations using December 2025 UK rates, and reveals strategies to maximise your compound growth in today's high-rate environment.

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% (current best easy access rate) 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 December 2025 Rates

Scenario: £5,000 initial deposit at 5.00% interest compounded monthly for 5 years (current best easy access rate)

Inputs:

P = £5,000
r = 0.05 (5.00% as decimal)
n = 12 (monthly compounding)
t = 5 years

Calculation:

A = £5,000 × (1 + 0.05/12)^(12×5)
A = £5,000 × (1 + 0.004167)^60
A = £5,000 × (1.004167)^60
A = £5,000 × 1.28336
A = £6,416.80

Result: Your £5,000 grows to £6,417 after 5 years Interest earned: £1,417 (28.3% return)

Compounding Frequency Matters

Using the same example but with different compounding frequencies:

Frequency	Final Amount	Interest Earned
Annually (n=1)	£6,381.41	£1,381.41
Quarterly (n=4)	£6,400.42	£1,400.42
Monthly (n=12)	£6,416.80	£1,416.80
Daily (n=365)	£6,420.93	£1,420.93

Key insight: More frequent compounding = slightly higher returns. Monthly compounding (typical for UK savings accounts) earns £35 more than annual compounding over 5 years.

Calculate Different Compounding Scenarios →

Real UK Savings Examples (Using December 2025 Rates)

Example 1: Lump Sum in Best Easy Access Savings (5.00% AER)

Deposit: £5,000 Rate: 5.00% AER (Cahoot Sunny Day Saver, December 2025) Time: 20 years Compounding: Monthly

Calculation:

A = £5,000 × (1 + 0.05/12)^(12×20)
A = £5,000 × (1.004167)^240
A = £5,000 × 2.71264
A = £13,563.20

Result: £5,000 → £13,563 after 20 years Interest earned: £8,563 (171% return)

Real returns accounting for inflation (3.6% CPI):

Nominal rate: 5.00%
Inflation: 3.6%
Real return: +1.4% (positive real growth!)

Comparison to 2024 rates:

December 2024 best easy access: 4.52%
Same £5,000 over 20 years: £12,253
December 2025 rates earn £1,310 more (10.7% extra!)

Example 2: Regular Monthly Savings (£200/month at 7.50%)

This is where compound interest gets exciting!

Monthly deposit: £200 Rate: 7.50% AER (Principality 6-month regular saver, December 2025) Time: 10 years (assuming you can maintain similar rates by switching) Total deposits: £200 × 12 × 10 = £24,000

Using compound interest for regular contributions formula:

A = £200 × [((1 + 0.075/12)^(12×10) - 1) / (0.075/12)]
A = £200 × [((1.00625)^120 - 1) / 0.00625]
A = £200 × [(2.1137 - 1) / 0.00625]
A = £200 × 178.19
A = £35,638

Result: You deposit £24,000, end with £35,638 Interest earned: £11,638 (48.5% return on deposits!)

Breakdown by year:

Year	Total Deposited	Balance (with compound interest)	Interest Earned
1	£2,400	£2,495	£95
2	£4,800	£5,283	£483
3	£7,200	£8,393	£1,193
5	£12,000	£14,993	£2,993
10	£24,000	£35,638	£11,638

Notice how interest accelerates: Year 1 earns £95, but Year 10 adds over £2,500 in interest alone!

Note: Regular saver accounts typically have 6-12 month terms with maximum monthly deposits (£200-£300). To maintain this over 10 years, you'd need to switch accounts regularly, but current December 2025 market offers multiple 7%+ options.

Example 3: Long-Term Wealth Building (£10k + £100/month for 30 years at 6%)

Initial lump sum: £10,000 Monthly additions: £100 Rate: 6% annual (conservative long-term 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 →

December 2025 Market: Exceptional Savings Rates

Best Easy Access Savings

Cahoot Sunny Day Saver: 5.00% AER

No monthly deposit limit
Instant access
FSCS protected up to £120,000 (increased December 2025)
£10,000 earns £500/year

Market comparison:

Best rate: 5.00%
Market average: 2.90%
High street average: 1.42%
Best rate pays 3.5× more than high street!

Regular Saver Accounts (Highest Rates)

Principality 6-month Regular Saver: 7.50% AER

Maximum £200/month deposits
6-month term
£1,200 deposited earns ~£45 in 6 months

Other top regular savers:

Zopa 12-month: 7.10% AER
First Direct 12-month: 7.00% AER
Typical limit: £200-£300/month

Why regular savers pay more:

Limited deposit amounts
Fixed terms
Banks use them for customer acquisition
Excellent for disciplined savers

Fixed Term Bonds

1-year fixed: 4.55% AER (Meteor/Investec) 2-year fixed: 4.38% AER 3-year fixed: 4.30% AER

Trade-off: Slightly lower rates than easy access but locked in for term. Not attractive in December 2025 environment where easy access pays 5.00%.

Cash ISAs (Tax-Free Savings)

Best easy access Cash ISA: 4.52% AER (Trading 212) Best 1-year fixed ISA: 4.50% AER

ISA allowance 2025/26: £20,000 Warning: From April 2027, under-65s limited to £12,000 in Cash ISAs only

Tax efficiency comparison (higher rate taxpayer):

Regular savings at 5.00%: Taxed at 40% on interest over £500 PSA
Cash ISA at 4.52%: Completely tax-free
On £20,000 deposit, after tax, ISA can beat higher-rate savings

Compare Savings and ISA Options →

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 with December 2025 rates:

Interest Rate	Years to Double (72 ÷ rate)	UK Account Type
5.00%	72 ÷ 5.00 = 14.4 years	Best easy access (Cahoot)
7.50%	72 ÷ 7.50 = 9.6 years	Regular savers (Principality)
4.52%	72 ÷ 4.52 = 15.9 years	Best Cash ISA (Trading 212)
3.6%	72 ÷ 3.6 = 20 years	Inflation rate (CPI Oct 2025)
2.90%	72 ÷ 2.90 = 24.8 years	Market average savings

Real example: £10,000 at 5.00% (best easy access)

Rule of 72: 72 ÷ 5.00 = 14.4 years to double
Actual calculation: 14.2 years to reach £20,000
Very close!

Practical use: Quickly compare savings products

Regular saver at 7.50%: Doubles in ~9.6 years
Easy access at 5.00%: Doubles in ~14.4 years
Difference: 4.8 years! (50% longer with lower rate)

Inflation warning: Inflation at 3.6% means money halves in real value every 20 years. You need savings rates above 3.6% to preserve real purchasing power.

Maximising Compound Interest Growth in December 2025

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. Use Best Rates Available (December 2025 Advantage)

Small rate differences create large compound differences:

£10,000 invested for 20 years:

2.90% (market average) = £17,500 (£7,500 interest)
4.52% (best Cash ISA) = £24,387 (£14,387 interest)
5.00% (best easy access) = £26,533 (£16,533 interest)

Best easy access (5.00%) vs market average (2.90%):

£9,033 more over 20 years (120% more interest!)
That's almost double the money earned

How to maximise rates in December 2025:

Use regular savers for maximum rates (7.50% vs 5.00% easy access)
Switch savings accounts when rates drop (current market highly competitive)
Compare best-buy tables monthly (Moneyfacts, MoneySavingExpert)
Avoid big banks (often pay lowest rates - 1.42% average vs 5.00% best)
Utilize FSCS protection up to £120,000 per institution (spread large savings)

3. 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

Combined: £10k + £200/month:

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

Benefit of regular contributions:

Affordable (don't need large lump sum upfront)
Dollar-cost averaging (consistent saving habit)
Compound interest works on each contribution immediately
Psychologically easier to maintain

4. 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.

5. Use Tax-Efficient Accounts (Cash ISAs)

Tax drags down compound growth:

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

£20,000 at 5% for 10 years
Gross interest: £12,889
Tax at 40% on interest over £500 PSA: £4,956 tax
Net interest: £7,933

With Cash ISA (tax-free):

Same £20,000 at 4.52% for 10 years (current best Cash ISA rate)
Tax: £0
Net interest: £11,294

ISA wins by £3,361 (42% more interest kept!) despite lower gross rate (4.52% vs 5.00%)

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

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 5.00% monthly compounding for 5 years = £5,000 × (1 + 0.05/12)^(12×5) = £6,417. Our calculator does this instantly with December 2025 rates.

What is the Rule of 72?

Divide 72 by your interest rate to estimate years to double your money. At 5.00% (best easy access, December 2025), 72 ÷ 5.00 = 14.4 years to double. At 7.50% (regular savers), 72 ÷ 7.50 = 9.6 years. Quick mental maths to compare savings products. £10,000 at 5.00% becomes £20,000 in 14.4 years.

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 5.00% over 5 years earns £35 more than annual compounding on £5,000. Check your account terms - AER (Annual Equivalent Rate) accounts for compounding.

Where can I earn compound interest in December 2025?

All UK savings accounts (easy access, regular savers, fixed bonds), Cash ISAs, Stocks & Shares ISAs (dividend reinvestment), bonds, and pensions. Current best rates December 2025: regular savers 7.50% (Principality), easy access 5.00% (Cahoot), Cash ISAs 4.52% (Trading 212). FSCS protection increased to £120,000 per institution.

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 7.50% vs 2.90% market average), and use tax-efficient accounts (Cash ISAs save 20-40% tax for higher earners). 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 ~7.50% AER, easy access ~5.00%, fixed bonds ~4.55%. "AER" (Annual Equivalent Rate) accounts for compounding frequency, allowing direct comparison. A 5.00% AER with monthly compounding gives the same return as 5.116% simple annual interest.

What are real returns after inflation?

Real return = nominal rate - inflation. December 2025: best easy access 5.00% - inflation 3.6% = +1.4% real return. This is positive real growth (purchasing power increases). Market average 2.90% - 3.6% inflation = -0.7% real return (losing purchasing power). Aim for savings rates above inflation to preserve wealth.

Should I use a regular saver or easy access account?

Regular savers pay higher rates (7.50% vs 5.00%) but have deposit limits (£200-£300/month) and fixed terms (6-12 months). Strategy: max out regular savers first for highest returns, put remaining savings in best easy access (5.00%) for flexibility. Example: £200/month regular saver (7.50%) + £10,000 emergency fund easy access (5.00%) = optimal.

Related Resources

UK Savings Calculator - Model your compound interest growth with current rates
ISA vs Regular Savings Guide - Compare tax-free vs taxable savings
Save £10k in 12 Months - Practical savings challenge with December 2025 rates
Income Tax Calculator - Understand tax on savings interest above Personal Savings Allowance

Official Sources:

Moneyfacts: Best Savings Rates December 2025 (8 December 2025)
Bank of England: Savings Rates Historical Data (Base rate 4.00%)
ONS: CPI Inflation (3.6% October 2025)
MoneySavingExpert: Best Buy Savings Tables

Last updated: 10 December 2025 Disclaimer: Examples use December 2025 UK savings rates: best easy access 5.00% (Cahoot), regular savers 7.50% (Principality), Cash ISAs 4.52% (Trading 212). Rates change frequently - always check current best-buy tables. FSCS protection increased to £120,000 per person/institution from 1 December 2025. Compound interest calculations assume constant rates, but actual rates vary. Past performance doesn't guarantee future returns, especially for investments. Inflation (3.6% CPI October 2025) reduces real returns. Tax treatment depends on personal circumstances (Personal Savings Allowance: £1,000 basic rate, £500 higher rate, £0 additional rate). UK Calculator is not a financial adviser.