Key facts
- £10,000 at 5% compounded yearly grows to £43,219 in 30 years, against £25,000 under simple interest, a £18,219 gap
- £200 a month at 6% compounded monthly reaches £200,903 after 30 years on £72,000 paid in
- The Rule of 72: at 6% your money doubles in about 12 years
- Cash and Stocks and Shares ISAs let growth compound free of UK tax, up to the £20,000 allowance for 2026/27
Model your own figures in the compound interest calculator and plan regular saving with the savings calculator.
Small, regular investments compounded over decades produce results that feel counterintuitive. Understanding the mechanics is one of the highest-value things you can do for your financial future.
What Is Compound Interest?
Simple interest pays you a return only on your original principal. Compound interest pays you a return on your principal and on all the interest you have already earned. This creates an exponential growth curve rather than a straight line.
For example, £10,000 at 6% simple interest over 20 years grows to £22,000. The same amount at 6% compound interest grows to £32,071, 46% more wealth from the same starting point, purely because each year's gains are reinvested and themselves earn returns.
The Rule of 72
The Rule of 72 is a quick mental shortcut to estimate how long it takes to double your money. Divide 72 by your annual interest rate to get the approximate doubling time in years.
| Annual Return | Doubling Time (Rule of 72) | Actual Doubling Time |
|---|---|---|
| 3% | 24 years | 23.4 years |
| 5% | 14.4 years | 14.2 years |
| 6% | 12 years | 11.9 years |
| 8% | 9 years | 9.0 years |
| 10% | 7.2 years | 7.3 years |
The rule is remarkably accurate for rates between 2% and 15%. At a typical long-run UK stock market return of around 7% to 8% per year (before inflation), your money should roughly double every 9 to 10 years.
The Value of Starting Early
The most powerful input in the compound interest formula is time. An investor who puts £5,000 into a stocks and shares ISA at age 25 and adds £200/month at 7% annual return will have approximately £560,000 by age 65. An investor who makes the same contributions starting at 35 will have approximately £270,000, less than half the result from starting 10 years later.
This is why financial advisers consistently emphasise starting as early as possible, even with very small amounts. The first £100 invested at 25 is worth far more than £100 invested at 45.
Start Small, Start Now
Many people wait until they have a significant lump sum before investing. Time in the market consistently beats timing the market. Even £50/month invested from age 22 to 65 at a 6% return grows to approximately £115,000 from total contributions of just £25,800. Start now and increase contributions as your income grows.Monthly Contributions and Compound Growth
Regular monthly investing builds wealth through pound-cost averaging and removes the need to time the market. The table below shows how £200 a month at 6% compounded monthly splits between what you pay in and what compound growth adds.
| Years saving | You pay in | Pot value | Of which growth |
|---|---|---|---|
| 10 years | £24,000 | £32,776 | £8,776 |
| 20 years | £48,000 | £92,408 | £44,408 |
| 30 years | £72,000 | £200,903 | £128,903 |
Source: WhatsUK calculation, £200 a month, contributions at month end, compounded monthly at 6%. Returns are not guaranteed. 16 June 2026.
ISAs: Tax-Free Compound Growth
The Stocks and Shares ISA is the UK's most tax-efficient wrapper for compound investing. You can contribute up to £20,000 per year (2026/27), and all growth, dividends, capital gains, and interest, is completely free of UK tax. Over decades, the tax saving compounds alongside the growth and becomes substantial.
In a General Investment Account (GIA), the same investments would attract capital gains tax on profits above the £3,000 annual exemption (2026/27), and dividend income above £500 is taxed at 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate). Over 20 years of compounding, an ISA holder might end up 15% to 25% wealthier than a GIA investor at the same contribution level, depending on tax band.
Compound Interest Calculator
Model how your investments grow over time with different interest rates, contribution amounts, and compounding frequencies. Includes ISA vs GIA comparison and year-by-year breakdown.
Monthly Contributions vs Lump Sums
If you have both a lump sum and the ability to make regular contributions, conventional wisdom says invest the lump sum immediately (lump sum investing beats pound-cost averaging around two-thirds of the time, historically). However, regular monthly investing has strong behavioural advantages: it smooths out volatility, requires no timing decision, and builds the habit of saving.
For most investors without large lump sums, the practical recommendation is to set up a direct debit to your ISA on payday. This removes the decision-making friction and ensures you invest consistently through both rising and falling markets.
Common Mistakes That Kill Compound Growth
Withdrawing early. Compound interest is disrupted every time you withdraw. If you invest in an ISA but dip into it for non-emergency spending, you break the compounding chain.
High fees. A 1.5% annual management charge versus 0.25% on an index fund may seem trivial. Over 30 years at 7% gross return, the high-fee fund produces approximately 30% less wealth. Keep charges as low as possible.
Stopping contributions during downturns. Market crashes feel alarming but they are buying opportunities for long-term investors. Contributions made when prices are low buy more units and produce proportionally higher returns when markets recover.
Related Calculators
Frequently Asked Questions
At 5% annual compound interest, £10,000 grows to £16,289 after 10 years, £26,533 after 20 years, and £43,219 after 30 years with no additional contributions. Adding £200 per month at 6% increases the 30-year total to approximately £210,000.
The best easy-access savings accounts in the UK currently offer around 4% to 5% AER. Fixed-rate bonds can offer slightly higher rates for locking money away. For long-term compound growth, a diversified stocks and shares ISA has historically returned 7% to 10% per year before inflation, though returns are not guaranteed.
Yes. All interest, dividends, and capital gains within an ISA are completely tax-free, with no limit on how much your ISA pot can grow. The annual ISA contribution allowance is £20,000 for 2026/27. This makes ISAs one of the most powerful vehicles for compound growth in the UK.
The Rule of 72 estimates how long it takes to double your money. Divide 72 by your annual return rate. At 6% interest, your money doubles in approximately 12 years (72 divided by 6 equals 12). At 4%, it takes about 18 years.
Because compound interest earns returns on previous returns, the earliest contributions have the longest time to grow. £200 a month from age 25 to 65 at 7% produces roughly £560,000, but starting at 35 with the same contributions produces about £270,000, despite only 10 fewer years of saving.
Fees compound against you. Over 30 years at 7% gross return, a 1.5% annual charge leaves you with about 30% less wealth than a 0.25% index fund charge on the same contributions. Even a 0.5% difference materially reduces long-term outcomes.
Historically, investing a lump sum immediately beats drip-feeding around two-thirds of the time. Monthly contributions still build significant wealth through pound-cost averaging and remove timing decisions. For most savers without a large lump sum, a regular ISA direct debit on payday is the most practical route.
The ISA allowance for 2026/27 is £20,000 per person per tax year. You can split this across Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA (the LISA sub-limit is £4,000 per year). Growth inside the wrapper compounds free of UK income tax and capital gains tax.
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James Hartley is a Chartered Management Accountant (CIMA) with more than eight years of experience in UK tax, payroll and compliance. He holds a BSc in Finance and Economics from the University of Manchester and spent his early career at a Big 4 accounting firm. He founded WhatsUK to build free UK financial calculators and guides verified against official HMRC sources. He authors every calculator and article on WhatsUK.
Sources & Official References
- Bank of England - Interest Rate History- Historical UK interest rate data
- HMRC ISA Allowances 2026/27- £20,000 annual ISA allowance
- FCA - Savings and Investment Products- Consumer guidance on savings and investment options
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.