DCA, lump sums & market comparisons
Return Rate
Historical avg: S&P 500 ~12%, NASDAQ ~16%, FTSE 100 ~6%
Ongoing Charges (Optional)
These fees reduce your net annual return
Typical: 0.15% – 0.45%
Index funds: 0.03% – 0.20%
Compounding Settings
Regular Contributions (DCA)
Dollar-cost averaging — consistent investing over time
Annual Lump Sum
Bonus, tax refund, or yearly extra investment
Specific Monthly Lump Sums
Add extra investments for specific months each year
What is Compound Interest?
Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods.
How to Use This Calculator
Enter your initial investment, interest rate, and time period to see how your money grows.
Frequently Asked Questions
Daily compounding applies interest 365 times per year. This is the most common frequency for savings accounts and money market accounts. It generates the highest returns compared to monthly or annual compounding.
Best for: High-yield savings accounts, money market accounts
Monthly compounding applies interest 12 times per year. This is the standard frequency for most savings accounts and certificates of deposit (CDs). It offers a good balance between frequency and simplicity.
Best for: Traditional savings accounts, some bonds
Quarterly compounding applies interest 4 times per year. Some bonds and investment accounts use this frequency. It provides moderate growth between monthly and annual compounding.
Best for: Some bonds, certain investment accounts
Annual or yearly compounding applies interest once per year. While simpler to track, it generates the least amount of interest compared to more frequent compounding methods over the same period.
Best for: Bonds, some traditional savings products
The more frequently interest compounds, the more you earn. For example, £10,000 at 5% annual interest will grow to £12,762.82 annually, £12,834.27 monthly, £12,863.56 daily, but £12,833.01 quarterly. Use our calculator to compare different frequencies for your specific situation.
What Is Compound Interest?
Compound interest is interest earned on both your original deposit and the interest already accumulated. Unlike simple interest — which only applies to your starting capital — compound interest snowballs over time. The longer money stays invested, the more it earns on itself.
Most UK ISAs, savings accounts, and investment funds compound monthly or daily. Pension funds compound continuously over decades — which is why starting early makes such a dramatic difference to retirement outcomes.
The Formula
Worked Example
You invest £5,000 at 5% annual interest, compounding monthly, for 20 years, with no extra contributions.
That's £8,601 earned in interest without adding a single extra pound. Add £200/month and the final balance exceeds £83,000.
How Compounding Frequency Affects Growth
£10,000 at 5% interest over 10 years — same rate, different compounding:
| Frequency | n | Final Value | Interest Earned |
|---|---|---|---|
| Annually | 1 | £16,289 | £6,289 |
| Quarterly | 4 | £16,436 | £6,436 |
| Monthly | 12 | £16,470 | £6,470 |
| Daily | 365 | £16,487 | £6,487 |
The rate matters far more than compounding frequency. A 4.5% account compounding monthly beats a 4.0% account compounding daily — always prioritise the rate.
Frequently Asked Questions
Is compound interest better than simple interest?
Yes, for savings and investments — almost always. Simple interest only applies to your original deposit. Compound interest applies to the growing total balance, so your returns accelerate over time. The longer the period, the bigger the difference.
How often do UK savings accounts compound?
Most UK savings accounts and ISAs compound monthly or daily. Fixed-rate bonds and NS&I products often compound annually. Always check the AER (Annual Equivalent Rate), which accounts for compounding frequency and lets you compare accounts on equal terms.
Does compound interest apply to investments?
Yes — though with investments it works through reinvested returns (dividends, fund growth) rather than a fixed interest rate. Index funds and stocks & shares ISAs benefit from compounding when dividends are reinvested automatically.
What is the Rule of 72?
A quick mental maths trick: divide 72 by your annual interest rate to estimate how long it takes to double your money. At 6% per year, your investment doubles in roughly 12 years (72 ÷ 6). At 9%, it doubles in 8 years.
Does inflation affect compound interest?
Yes. If your savings account pays 4% AER but inflation is 3%, your real return is roughly 1%. Over long periods this matters enormously. This is why investing in assets that outpace inflation (equities, property) is often recommended for long-term goals.
Sources & Further Reading
Related Calculators
Mandeep Singh · 25+ Years UK Financial Services
Important Information
This calculator is for informational purposes only and does not constitute financial advice, a personal recommendation, or an offer to buy or sell any investment or asset class.
Projected figures are illustrative estimates based solely on the inputs you provide. Returns are not guaranteed and actual outcomes will differ.
Past performance is not a guide to future performance, nor a reliable indicator of future results.
If you are unsure about the suitability of any investment or savings strategy for your circumstances, you should seek independent advice from a qualified financial adviser.