Compound Interest Calculator 2026/27
If you invest £5,000 initially and add £200 per month at 6% annual interest compounded monthly, after 20 years you will have approximately £109,421. Your total contributions would be £53,000 and the interest earned would be approximately £56,421. In an ISA, all of that growth is completely tax-free.
Figures verified against Bank of England base rate on .
Written by James HartleyCIMA
Calculator
Final Value after 20 years
£109,421
Contributions: £53,000 · Interest: +£56,421
Total Contributed
£53,000
your money
Interest Earned
£56,421
106% return on contributions
Growth Multiple
2.06×
every £1 became £2.06
Tax Wrapper
ISA (tax-free)
No CGT or income tax on growth
Rule of 72: Your money doubles every 12.0 years
At 6% annual interest, divide 72 by the rate to estimate the doubling time. 72 ÷ 6 = 12.0 years.
ISA advantage: All interest and gains inside a Stocks & Shares ISA or Cash ISA are completely free from income tax and capital gains tax. The annual ISA allowance is £20,000 (2026/27). Over 20 years, this can save tens of thousands in tax compared to a general investment account.
Year-by-Year Breakdown
| Year | Annual Contributions | Interest Earned | Year-End Balance |
|---|---|---|---|
| 1 | £2,400 | +£388 | £7,788 |
| 2 | £2,400 | +£560 | £10,748 |
| 3 | £2,400 | +£742 | £13,890 |
| 4 | £2,400 | +£936 | £17,226 |
| 5 | £2,400 | +£1,142 | £20,768 |
| 6 | £2,400 | +£1,360 | £24,528 |
| 7 | £2,400 | +£1,592 | £28,521 |
| 8 | £2,400 | +£1,839 | £32,759 |
| 9 | £2,400 | +£2,100 | £37,259 |
| 10 | £2,400 | +£2,378 | £42,037 |
| 11 | £2,400 | +£2,672 | £47,109 |
| 12 | £2,400 | +£2,985 | £52,494 |
| 13 | £2,400 | +£3,317 | £58,211 |
| 14 | £2,400 | +£3,670 | £64,281 |
| 15 | £2,400 | +£4,044 | £70,725 |
| 16 | £2,400 | +£4,442 | £77,567 |
| 17 | £2,400 | +£4,864 | £84,830 |
| 18 | £2,400 | +£5,312 | £92,542 |
| 19 | £2,400 | +£5,787 | £100,729 |
| 20 | £2,400 | +£6,292 | £109,421 |
Your compound interest earnings exceed your total contributions , this is the power of compounding over time. The longer you leave it, the faster it grows.
With returns of this size, sheltering investments in a Stocks & Shares ISA (up to £20,000/year) means all growth is completely tax-free.
With UK inflation averaging 2 to 3%, your real return is lower than the nominal rate shown. A 5% return with 3% inflation gives only ~2% real growth in purchasing power.
These insights are generated based on your inputs and general UK financial guidelines. They do not constitute personal financial advice. Always consult a CIMA-qualified accountant or FCA-regulated adviser before making financial decisions.
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How Compound Interest Calculator 2026/27 Works
Compound Interest Formula
The standard compound interest formula for a lump sum is: FV = PV × (1 + r/n)^(n×t), where PV is present value, r is annual rate, n is compounding periods per year, and t is years. This calculator extends this to include regular monthly contributions, adding each month's deposit before applying interest.
Monthly Contributions
Regular contributions dramatically accelerate growth. A £200/month contribution at 6% over 20 years adds £48,000 in cash but generates roughly the same in interest, and the two effects nearly double the contribution impact. Contributing early and regularly is the most reliable wealth-building strategy available to most people.
Compounding Frequency
Monthly compounding produces slightly higher returns than quarterly or annual. Most savings accounts and investment platforms compound monthly. The difference over long periods is meaningful but secondary to the interest rate itself.
Tax Wrappers
Inside a Cash ISA or Stocks & Shares ISA, all interest, dividends, and capital gains are tax-free. The £20,000 annual ISA allowance means most people can shelter all their contributions. In a General Investment Account, interest may be subject to income tax and gains above £3,000/year are subject to CGT. The ISA advantage compounds over time - sheltering £49,000 in interest from 20% basic rate tax saves £9,800.
Rule of 72
Divide 72 by your annual interest rate to estimate years to double. At 6%: 12 years. At 9%: 8 years. This is useful for quickly comparing different interest rates or assessing the impact of inflation eroding purchasing power.
Frequently Asked Questions
Compound interest means you earn interest on both your original deposit and all previously accumulated interest. Unlike simple interest (which only applies to the principal), compound interest grows exponentially over time. For example, £10,000 at 5% simple interest earns £500/year. At 5% compound interest, Year 1 earns £500, Year 2 earns £525 (5% of £10,500), Year 3 earns £551.25, and so on. Over 20 years, the compound version grows to £26,533 vs £20,000 with simple interest.
Simple interest is calculated only on the original principal - the interest earned is the same each period. Compound interest is calculated on the principal plus all previously earned interest - the interest grows each period. The difference becomes dramatic over long time periods. At 7% for 30 years: simple interest turns £10,000 into £31,000; compound interest turns it into £76,123. This is why compound interest is often called 'the eighth wonder of the world'.
The Rule of 72 is a quick mental formula to estimate how long it takes for an investment to double in value. Simply divide 72 by the annual interest rate. At 6%: 72 ÷ 6 = 12 years to double. At 9%: 72 ÷ 9 = 8 years. At 4%: 72 ÷ 4 = 18 years. The rule works because the mathematical doubling time is ln(2) / ln(1+r) ≈ 0.693 / r, and 72 is close enough to 69.3 for easy mental arithmetic.
For cash savings: high-interest savings accounts (4 to 5% in 2025), cash ISAs (up to 5%), and fixed-rate bonds. For higher long-term returns: Stocks & Shares ISAs (historically 7 to 10% annually over 20+ years, but with market risk), SIPPs (pension wrappers with tax relief on contributions), and Lifetime ISAs (25% government bonus on contributions). The ISA wrapper is particularly powerful because all compound growth is tax-free.
Yes - all interest, dividends, and capital gains inside a Stocks & Shares ISA or Cash ISA are completely free from UK income tax and capital gains tax. This makes the ISA one of the most powerful wealth-building tools available to UK investors. The annual ISA allowance is £20,000 (2026/27). Over decades of compound growth, the tax saving inside an ISA versus a general investment account can amount to tens of thousands of pounds.
More frequent compounding produces slightly higher returns. Monthly compounding produces more than quarterly, which produces more than annual. The difference is relatively small - £10,000 at 5% compounded annually grows to £16,289 after 10 years; compounded monthly it grows to £16,471 - a difference of £182. The compounding frequency matters less than the interest rate and time invested. However, monthly compounding is most common for savings accounts.
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Official Rates Used
This calculator uses official HMRC rates for 2026/27. View the current rates at GOV.UK:
Rates last verified:
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.