Free Compound Interest Calculator

How Compound Interest Works

Compound interest is interest calculated on both your initial principal and the interest you’ve already accumulated. The longer your money compounds, the faster it grows — because each period, you’re earning returns on a larger base.

The standard formula is: A = P(1 + r/n)^(nt)

Where:

  • A = the final amount
  • P = principal (initial investment)
  • r = annual interest rate (as a decimal)
  • n = number of times interest compounds per year
  • t = time in years

In practice, most investments compound annually or monthly. More frequent compounding produces slightly higher returns.

The Real Power: Regular Contributions

A lump-sum investment compounds well, but consistent monthly contributions dramatically amplify the effect. Adding £200/month to a £1,000 starting balance at 7% over 30 years produces roughly 4× more than the lump sum alone. This calculator lets you model both the starting amount and a monthly contribution side by side.

Comparing 3 Scenarios

This calculator lets you set up three independent scenarios and compare them on the same chart. Use this to explore questions like:

  • “What if I start at 25 vs. 30 vs. 35?”
  • “What if I get 5%, 7%, or 9% annual returns?”
  • “What’s the difference between contributing £100, £200, or £400 per month?”
  • “How much does inflation actually erode my real returns?”

The side-by-side visual makes the differences immediately obvious in a way that tables of numbers don’t.

Compound Frequency Options

  • Annual — interest calculated and added once per year
  • Semi-annual — twice per year
  • Quarterly — four times per year
  • Monthly — twelve times per year (common for savings accounts and investments)
  • Daily — 365 times per year (used by some high-yield savings accounts)

More frequent compounding always produces a slightly higher result, but the difference between monthly and daily is usually marginal. The choice of interest rate and time horizon matters far more.

Inflation Adjustment

The nominal return shown by most investment calculators doesn’t account for purchasing power erosion. £100,000 in 30 years won’t buy what £100,000 buys today. Enable the inflation adjustment option to see your real return — the actual increase in purchasing power after inflation is subtracted.

A common assumption is 2–3% annual inflation for developed economies, though this has varied significantly in recent years.

Frequently Asked Questions

What interest rate should I use?

For long-term stock market projections, 7% annual (inflation-adjusted) or 10% nominal is a commonly cited historical average for US equities. For cash savings accounts, use your account’s current advertised APY. For bonds, 3–5% is a conservative estimate for developed market government bonds.

Does this calculator account for taxes?

No. Tax treatment of investment gains varies by country, account type (ISA vs GIA in the UK, Roth vs Traditional IRA in the US), and individual circumstances. Subtract your estimated tax rate from the return percentage to get a rough after-tax estimate.

What’s the difference between APR and APY?

APR (Annual Percentage Rate) doesn’t account for compounding within the year. APY (Annual Percentage Yield) does. A 12% APR compounding monthly is actually 12.68% APY. Most investment products quote APR; banks often quote APY for savings accounts because it sounds higher.

How accurate is the compound interest formula?

The mathematical formula used here is exact for fixed interest rates and regular contributions. Real-world investment returns aren’t fixed — they fluctuate year to year. This calculator models what would happen under a constant rate assumption, not what will actually happen with a variable-return investment.

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