- Compound interest
- interest earned on your original money plus all the interest already added, so growth accelerates over time.
- Simple interest
- interest paid only on the original sum, with no interest on interest.
- Compounding frequency
- how often interest is added to the balance, yearly, monthly or daily, with more frequent compounding producing slightly more growth.
- Rule of 72
- a quick estimate of how long money takes to double: divide 72 by your yearly return rate.
- ISA allowance
- the tax-free amount you can put into Cash or Stocks and Shares ISAs each tax year, £20,000 for 2026/27.
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 build the buffer that lets you leave money invested with emergency fund guide.
| 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.
A quick shortcut is the Rule of 72: divide 72 by your yearly return to estimate how long your money takes to double. At 6% that is 72 divided by 6, or about 12 years. To keep the growth, shelter it: inside a Cash ISA or Stocks and Shares ISA the interest and gains are free of UK tax, and the ISA allowance is £20,000 for 2026/27.
Compounding also works in reverse on debt and in your favour on a mortgage: see mortgage overpayment guide, and on pensions through salary sacrifice guide.
How Compound Interest Works
The formula for compound interest is:
A = P × (1 + r/n)^(nt)
Where: A = final amount, P = principal (initial investment), r = annual interest rate (as a decimal), n = number of compounding periods per year, t = time in years.
For daily compounding at 5% on £10,000 for 10 years: A = £10,000 × (1 + 0.05/365)^(365×10) = £16,487, slightly more than annual compounding (£16,289) because interest is added more frequently. To model any scenario instantly, use our compound interest calculator with your own figures and time horizon.
The Power of Time: Compound Interest Tables
| Years | 3% Annual Rate | 5% Annual Rate | 7% Annual Rate | 10% Annual Rate |
|---|---|---|---|---|
| 1 year | £10,300 | £10,500 | £10,700 | £11,000 |
| 5 years | £11,593 | £12,763 | £14,026 | £16,105 |
| 10 years | £13,439 | £16,289 | £19,672 | £25,937 |
| 20 years | £18,061 | £26,533 | £38,697 | £67,275 |
| 30 years | £24,273 | £43,219 | £76,123 | £174,494 |
| 40 years | £32,620 | £70,400 | £149,745 | £452,593 |
All figures show growth of a single £10,000 lump sum with no additional contributions. Annual compounding assumed.
Notice how at 7%, £10,000 becomes nearly £150,000 over 40 years, a 15x return, without any additional contributions. At 10% (historical long-run equity market average), the same money becomes over £450,000. This illustrates why starting to invest early is so powerful: time is the key ingredient. One of the most powerful ways to accelerate this is through salary sacrifice pension contributions, which reduce your tax bill and increase the amount compounding in your pension.
The Effect of Regular Monthly Contributions
Adding regular monthly contributions to compound interest dramatically accelerates wealth accumulation. Even modest amounts, invested consistently, build substantial sums:
| Monthly Contribution | After 10 Years (5%) | After 20 Years (5%) | After 30 Years (5%) |
|---|---|---|---|
| £50/month | £7,764 | £20,638 | £41,613 |
| £100/month | £15,528 | £41,275 | £83,226 |
| £200/month | £31,056 | £82,549 | £166,452 |
| £500/month | £77,641 | £206,373 | £416,129 |
| £1,000/month | £155,283 | £412,746 | £832,258 |
Assumes 5% annual interest, monthly compounding, contributions made at month end. Starting balance £0. At 6%, £200 a month reaches £32,776, £92,408 and £200,903 over 10, 20 and 30 years.
Compound Interest Calculator
Calculate how any lump sum or regular monthly contribution grows over time. Choose your interest rate, compounding frequency, and time horizon. See year-by-year growth projections and total interest earned.
Does Compounding Frequency Matter?
| Compounding Frequency | £10,000 at 5% over 10 Years | Difference vs Annual |
|---|---|---|
| Annual | £16,288.95 | - |
| Quarterly | £16,436.19 | +£147.24 |
| Monthly | £16,470.09 | +£181.14 |
| Daily | £16,486.65 | +£197.70 |
| Continuously | £16,487.21 | +£198.26 |
Illustrates diminishing returns from more frequent compounding. The jump from annual to monthly is meaningful; daily vs monthly is negligible for most purposes.
More frequent compounding always produces more growth, but the gains diminish rapidly. The difference between monthly and daily compounding is negligible in practice. What matters far more is the rateand the time horizon.
Compound Interest in ISAs and Pensions
ISAs and pensions are the most tax-efficient ways to benefit from compound interest in the UK. Because growth is tax-free (ISA) or tax-deferred (pension), you compound on the gross return rather than the after-tax return. The ISA allowance is £20,000 per year in 2026/27. Over 25 years at 7%, £20,000/year builds to over £1.2 million, all tax-free on withdrawal from a Stocks and Shares ISA. To see how much of your income you keep after tax to invest, check your take-home pay with our salary calculator.The Dark Side: Compound Interest on Debt
Compound interest works exactly the same way on debt, just against you. Credit card debt at 25% APR compounds every month, meaning an unpaid £1,000 balance grows to approximately £1,280 after one year if no payments are made, and over £3,000 after five years. If you own a home, consider whether making mortgage overpayments is the right use of spare cash versus investing.
| Debt Amount | After 1 Year (25% APR) | After 3 Years (25% APR) | After 5 Years (25% APR) |
|---|---|---|---|
| £500 | £640 | £1,045 | £1,709 |
| £1,000 | £1,280 | £2,090 | £3,417 |
| £5,000 | £6,398 | £10,452 | £17,087 |
| £10,000 | £12,797 | £20,905 | £34,173 |
Assumes 25% APR compounded monthly, no repayments made. For illustration only. Minimum payments are legally required on most credit facilities.
Payday Loans and High APR Products
Some high-cost short-term credit products (e.g. buy-now-pay-later misused, or legacy payday loans) have effective APRs exceeding 1,000%. Even compound interest at only 100% APR doubles debt in roughly 12 months. The priority hierarchy for anyone with debt: 1) minimum payments on all debt, 2) emergency fund, 3) pay off highest-rate debt, 4) then invest. Compound growth only works in your favour when the rate on savings exceeds the rate on debt.Starting Early: The Most Important Variable
The investor who starts at 25 and contributes for 10 years then stops will often outperform the investor who starts at 35 and contributes for 30 years, even though the second investor contributes 3x as much. This is the power of a longer compounding runway.
| Investor | Contributions | Total Invested | Value at Age 65 (7%) |
|---|---|---|---|
| Starts at 25, stops at 35 | £200/month for 10 years | £24,000 | ~£286,000 |
| Starts at 35, continues to 65 | £200/month for 30 years | £72,000 | ~£227,000 |
| Starts at 25, continues to 65 | £200/month for 40 years | £96,000 | ~£513,000 |
Assumes 7% annual compound return, monthly contributions, no initial lump sum. Illustrative only.
The investor who starts early and stops still ends up with more money than the investor who starts later and never stops, despite investing one third as much. The first decade of contributions laid a foundation that 30 more years of later contributions could not match. The best time to start is always today.
Related Calculators
Frequently Asked Questions
Compound interest is interest calculated on both the initial principal and all previously accumulated interest. Unlike simple interest (calculated only on the principal), compound interest causes your money to grow exponentially over time. A £10,000 investment at 5% compound interest grows to £16,289 after 10 years and £43,219 after 30 years.
Most UK savings accounts compound interest annually (AER). Some accounts compound monthly or daily, which produces slightly more growth. A £10,000 deposit at 5% AER earns £500 with annual compounding but £511.62 with monthly compounding over one year.
The Rule of 72 is a quick formula to estimate how long it takes to double your money. Divide 72 by the annual interest rate. At 6% interest, your money doubles in approximately 12 years (72 divided by 6 = 12). At 4%, it takes about 18 years.
Compound interest on debt works against you. Credit card balances at 22% APR compound monthly, meaning unpaid interest is added to your balance and you pay interest on that interest. A £3,000 credit card balance paying only minimum payments can take over 25 years to clear and cost over £4,000 in interest.
Use A equals P times (1 plus r divided by n) to the power of n times t, where P is your starting amount, r is the yearly rate, n is how many times a year it compounds and t is the years. For £10,000 at 5% compounded yearly for 30 years, A is £43,219, so the interest earned is £33,219.
Simple interest is paid only on your original sum, while compound interest is paid on the sum plus all the interest already added. On £10,000 at 5% over 30 years, simple interest gives £25,000 but compound interest gives £43,219, a difference of £18,219 created entirely by interest earning interest.
Saving £200 a month at 6% compounded monthly, you would have about £32,776 after 10 years, £92,408 after 20 years and £200,903 after 30 years, having paid in £24,000, £48,000 and £72,000. Investment returns are not guaranteed, so treat these as projections.
A Cash ISA or a Stocks and Shares ISA lets your interest and gains compound free of UK income tax and capital gains tax, up to the £20,000 ISA allowance for 2026/27. A pension also compounds tax-free and adds tax relief on what you pay in.
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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 Data- UK historical interest rate statistics
- FCA - Savings Rates and ISAs- Consumer guidance on savings products
- HMRC ISA Allowances 2026/27- Tax-free savings wrapper: £20,000 annual allowance
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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.