Compound Interest Calculator

See how much your savings will be worth in the future when interest compounds and you keep adding contributions. The single most useful calculation in personal finance.

How compound interest works

Simple interest pays you a percentage of your original deposit, every period, forever. Compound interest pays you a percentage of your balance — which includes all the interest you've already earned. After enough cycles, you're earning interest on interest on interest. That's why Einstein supposedly called it “the eighth wonder of the world.”

The compound interest formula for a lump sum is:

A = P · (1 + r/n)n·t

Where A is the future value, P is the starting balance, r is the annual interest rate as a decimal, n is how many times per year interest compounds, and t is the number of years.

Worked example

Say you start with £10,000 and add £500 every month into an account returning 7% annually, compounded monthly. After 20 years your balance grows to roughly £300,000. Of that, you contributed about £130,000 (£10,000 upfront + £500 × 240 months). The remaining £170,000 is pure compound growth — money you didn't earn, didn't save, didn't pay tax on yet. That's the magic.

Why compounding frequency matters less than you'd think

The difference between annual, monthly, and daily compounding at the same 7% nominal rate is surprisingly small. Daily compounding gives an effective annual yield of about 7.25%; monthly gives 7.23%; annually gives exactly 7.00%. The thing that really matters is time in the market. Doubling your contribution period from 10 to 20 years roughly quadruples your end balance, because the last few years are doing most of the work.

What compound interest cannot do

It can't beat inflation if you're earning below the inflation rate. It can't protect you from sequence-of-returns risk (a crash right before you retire is far worse than the same crash 20 years earlier). It can't compensate for high fund fees, which compound against you with the same relentless math. A 1% expense ratio over 30 years reduces your end balance by roughly 25%, which is far more than people intuitively expect.

Disclaimer

Investment returns are not guaranteed. The 7% used in the example is a long-run historical average for diversified US equity markets and is not a forecast. Your actual returns will vary, and may be negative. This calculator is a teaching tool, not financial advice.