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How this works
Compound interest means you earn interest on your interest. Each time interest is added, the next lot is worked out on a slightly bigger balance, so growth speeds up the longer you leave it.
The calculator first turns the rate you enter, and how often it’s added, into a true yearly rate (the AER). It then grows your balance a month at a time and adds your monthly amount at the end of each month, or at the start if you choose. Finally, it splits the result into what you paid in and what came from interest.
What it assumes
- The interest rate stays the same for the whole period.
- Tax on interest isn’t taken off.
- Inflation isn’t taken off, so the final balance is in future pounds, not today’s.
Worked example
£1,000 plus £100 a month for 10 years
- You start with £1,000, add £100 at the end of each month and earn 4% a year, added monthly.
- After 10 years you have £16,215.81. You paid in £13,000, so £3,215.81 is interest, about a fifth of the total.
- If the same 4% were added once a year instead of monthly, you’d have £16,149.84.
- Leave it for 20 years and the balance reaches £38,900.04 from £25,000 paid in. The interest, £13,900.04, is more than four times the 10-year figure.
Worked out with the same maths as the calculator above.
What to do next
Common questions
What’s the difference between AER and the gross rate?
The gross rate is the headline yearly rate before compounding. The AER shows what you’d actually earn in a year once interest is added on interest. If interest is paid once a year, the two are the same. Use the AER to compare accounts.
Does it matter how often interest is added?
A little. More frequent compounding earns slightly more at the same gross rate. In the example above, monthly rather than yearly interest is worth about £66 over 10 years. The rate itself and how long you save matter far more.
Why is the first few years’ interest so small?
Interest is a share of your balance, and the balance starts small. As it grows, each month’s interest grows too. That’s why the line on the chart curves upwards rather than going up in a straight line.
Can I use this for investments?
You can enter an expected yearly return, but investments rise and fall rather than growing smoothly. For that, the investment growth calculator also takes off fees and shows the result in today’s money.