See how your savings and investments grow over time. All calculations run locally in your browser.
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Initial Deposit£0.00
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Year-by-Year Growth Breakdown
Year
Contributions
Interest
Total
How Compound Interest Works
Compound interest is often called the eighth wonder of the world. Unlike simple interest, which is calculated only on the original amount, compound interest is calculated on both the principal and the accumulated interest from previous periods. This creates a snowball effect where your money grows faster and faster over time.
The Compound Interest Formula
A = P(1 + r/n)^(nt) + PMT x [((1 + r/n)^(nt) - 1) / (r/n)]
Where P is the principal (initial deposit), r is the annual interest rate, n is the number of times interest compounds per year, t is the number of years, and PMT is the regular monthly contribution.
Why Compounding Frequency Matters
The more frequently interest is compounded, the more your money grows. Monthly compounding means interest is calculated and added to your balance 12 times per year, while yearly compounding only does this once. With monthly compounding at 5%, your effective annual rate is actually 5.12% due to the compounding effect.
The Power of Regular Contributions
Even small monthly contributions can make an enormous difference over time. Adding just £100 per month to a £10,000 deposit at 5% over 20 years turns your total into over £67,000, of which more than £21,000 is pure interest. Starting early and contributing consistently is one of the most reliable paths to building wealth.
UK Savings and Tax Considerations
In the UK, basic rate taxpayers can earn up to £1,000 in savings interest tax-free each year through the Personal Savings Allowance. Higher rate taxpayers get £500. Interest earned within an ISA wrapper is entirely tax-free. This calculator shows gross (pre-tax) figures, so factor in your tax position when planning.
Compound Interest FAQs
What is compound interest?
Compound interest is interest calculated on both your initial deposit and on any interest already earned. Unlike simple interest, which only applies to the original amount, compound interest lets your money grow faster because you earn interest on your interest. This snowball effect is what makes long-term saving and investing so powerful.
How does compounding frequency affect my returns?
The more frequently interest is compounded, the more you earn. Monthly compounding produces slightly higher returns than quarterly, which in turn beats yearly compounding. For example, £10,000 at 5% compounded monthly yields £16,470 after 10 years, while yearly compounding yields £16,289. The difference grows larger with higher rates and longer time periods.
What is a good interest rate for UK savings in 2026?
As of 2026, competitive easy-access savings accounts in the UK offer around 4-5% AER. Fixed-rate bonds and ISAs may offer slightly higher rates for locking your money away. The Bank of England base rate influences all savings rates, so they can change over time. Always compare rates across providers to get the best deal.
Do I pay tax on savings interest in the UK?
UK taxpayers get a Personal Savings Allowance (PSA). Basic rate taxpayers can earn up to £1,000 in savings interest tax-free, while higher rate taxpayers get £500. Additional rate taxpayers receive no PSA. Interest earned within an ISA is always tax-free, regardless of the amount. This calculator shows gross returns before any tax.
How much will £10,000 grow in 10 years?
It depends on the interest rate and compounding frequency. At 5% compounded monthly, £10,000 grows to approximately £16,470 after 10 years without any additional contributions. If you add £200 per month on top, that figure rises to around £47,550. Use the calculator above to model your own scenario with different rates and contribution amounts.