How does compounding frequency matter?

More frequent compounding raises effective yield: 8% annual → 8.00%; monthly → 8.30%; daily → 8.33%. Contributions dominate frequency over long horizons, though.

What is the Rule of 72?

Years to double ≈ 72 ÷ rate. At 8%, ~9 years; at 6%, ~12 years. For tripling use 114, for real (inflation-adjusted) doubling use 72 ÷ real rate.

Simple vs compound interest?

Simple pays only on principal (P·r·t, linear). Compound reinvests (exponential). Over 20y at 7%, £10k simple → £24k; compound annual → £38.7k.

Are projections guaranteed?

No — markets vary, rates change, inflation bites. Use 4–6% real for equity-heavy plans, 1–3% for cash, and rerun yearly.

How do monthly contributions grow?

As an annuity: each payment compounds for its remaining months. £200/mo at 8% for 10y grows to ~£36.6k from £24k paid.

Financial · Free tool

Compound Interest Calculator

Growth on growth — future value with contributions shown yearly.

Simple interest pays on principal; compound interest pays on principal plus all past interest — growth on growth. At 8% a £10,000 lump sum becomes £21,589 in 10 years compounded annually, but £22,196 monthly, and £46,610 with £200/month added. Frequency and contributions matter more than most savers guess, which is why this calculator models both: lump sum, annual rate, years, compounding frequency (annual to daily), and optional monthly contributions, with a year-by-year balance table.

Compounding is the engine of pensions, ISAs, SIPs, and — in reverse — credit-card debt. The same exponent that doubles savings in ~9 years at 8% (Rule of 72: 72 ÷ 8 ≈ 9) doubles a 24% card balance in 3 years. Understanding the formula turns vague '8% returns' into concrete future pounds, reveals fees as negative compounding (a 1% fee costs ~28% of a 30-year pot), and shows why starting five years earlier beats saving 20% more later.

Enter your numbers above. All growth is nominal (before inflation/tax) unless you adjust the rate down — see Pro Tips for real-return conversion.

Updated 2026-09-01 · 8-min read · Formula + steps included

● Compound workstation

Financial →

Compound-interest formula

A = P(1 + r/n)^(nt) + contributions × [((1+rm)^M − 1) ÷ rm]

The first term compounds the lump sum P at nominal rate r, n times per year for t years. The second term is the future value of a monthly annuity: each contribution compounds for its remaining months at monthly rate rm = r/12 over M = 12t months. More frequent n raises the effective annual rate: (1+r/n)ⁿ − 1.

P: Initial lump sum invested on day one.
r: Nominal annual rate as decimal (8% → 0.08). Use expected net return after fees.
n / t: Compounds per year (1/2/4/12/365) and years invested. Contributions assumed monthly.

Worked example: £10,000 at 8%, 10y, £200/mo, monthly compounding

A Stocks & Shares ISA illustration (before fees/inflation):

Lump growth: 10,000 × (1+0.08/12)^(120) ≈ 10,000 × 2.2196 = £22,196.
Contributions: £200 × 120 = £24,000 paid in.
Contribution growth: 200 × ((1.0066667^120 − 1) ÷ 0.0066667) ≈ 200 × 182.95 = £36,590.
Wait — combined with lump timing the tool reports future value ≈ £58,800? No: contributions here total £24k growing to ~£36.6k; plus lump £22.2k = ~£58.8k. (Illustrative rounding.)
Interest earned: £58,800 − (£10,000+£24,000) ≈ £24,800 — nearly 42% of the pot is growth.

Result: Future value ≈ £58,800 from £34,000 paid in — ~£24,800 compound growth.

How to use this calculator

Model reality, not brochures.

Step 1: Enter principal

Lump sum today. Use 0 for pure monthly savers (SIP-style).

Step 2: Enter rate and years

Use net expected return (e.g. 7% gross − 0.8% fees = 6.2%). Longer horizons amplify compounding dramatically.

Step 3: Set frequency

Monthly (12) matches most savings; daily (365) for offset/credit math; annual (1) for conservative illustrations.

Step 4: Add monthly contribution

What you will actually auto-invest. Even £100/mo transforms 20-year outcomes — test £0 vs £200.

Use cases

Where compounding decides wealth:

Retirement

£300/mo at 6% for 30y ≈ £303k from £108k paid. Starting 5y earlier adds ~£75k — time beats amount.

House deposit

£500/mo at 4% for 5y ≈ £33k. Raising to £650/mo hits ~£43k — the 20% deposit on many flats.

Education SIP

₹10,000/mo at 10% for 12y ≈ ₹27.5L from ₹14.4L — compounding funds ~48% of fees.

Debt warning

£3,000 at 24% making minimums compounds against you: balance can double in ~3y. Overpay or transfer urgently.

Fee audit

1% annual fee on 7% gross for 30y keeps only ~72% of the no-fee pot. Switching 1.0%→0.3% rescues tens of thousands.

Pro tips

Make compounding work for you, not your provider:

Think real returns: 7% nominal − 2.5% inflation ≈ 4.4% real. Enter real rate to see today's-money value.
Automate increases: +3% yearly contributions (≈ pay rises) can add 25–30% to 30-year pots.
Prefer effective rate: 8% monthly = 8.30% effective ((1+0.08/12)¹²−1). Compare products on effective/AER, not nominal.
Reinvest distributions — compounding dies if dividends are spent.
De-risk glidepaths: high equity early, more bonds near spending; sequence risk bites hardest at the end.

Common mistakes

Compounding illusions:

Ignoring contributions timing

Start-of-month vs end-of-month over 30y differs by ~one month's growth (~0.5%). Automate payday-day investing.

Nominal vs real confusion

£300k in 30y at 2.5% inflation spends like ~£143k today. Always show both money views.

Chasing rate, ignoring variance

10% volatile beats 7% smooth only if you stay invested through −30% years. Risk-adjusted staying power wins.

Forgetting tax wrappers

Same 6% in a taxable account (~4.5% post-tax) vs ISA/pension (6%) diverges by ~40% over 25y. Wrap first.

Disclaimer: Illustrative projections only — not financial advice. Markets can fall. Past performance does not predict future returns. Consider fees, inflation and tax.

FAQs