Compound Interest Calculator (UK)
See how your money grows over time with the power of compounding. Add monthly contributions to maximise your results.
Compound interest in the UK is most powerfully accessed through tax-free wrappers — the Stocks and Shares ISA, Cash ISA, Lifetime ISA, and SIPP pension. The 2026/27 ISA allowance is £20,000, and HMRC's ISA Manager Reference Manual on gov.uk is the authoritative rulebook for what compounds tax-free inside the wrapper.
Compound interest is the mathematical result of returns earning further returns on themselves. The formula is A = P(1 + r/n)^(nt), where P is your starting capital, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years. Add a regular contribution and you're computing the future value of an annuity: FV = P(1+r/n)^(nt) + PMT × [((1+r/n)^(nt) − 1) ÷ (r/n)]. This calculator runs both.
What separates UK compounding from US or European compounding is the ISA wrapper. Outside an ISA, dividends above the £500 dividend allowance are taxed at 10.75% / 35.75% / 39.35% (2026/27 rates, up from 8.75% / 33.75% / 39.35% on 6 April 2026), interest above the £1,000 Personal Savings Allowance is taxed at marginal rate, and capital gains above the £3,000 Annual Exempt Amount are taxed at 18% / 24% (post-October 2024 Budget rates). Inside an ISA, all three are zero. Over 30 years, that 1-2% annual tax drag compounds into a 25-40% lower terminal balance.
Realistic UK return assumptions to plug in: global equity index funds have historically returned 4-6% real (after inflation), a 60/40 balanced portfolio around 3-4% real, and Cash ISAs typically deliver near-zero real returns once CPI is accounted for. The Bank of England's CPI series and the ONS inflation pages are the authoritative reference for stripping inflation from nominal returns. For ISA-wrapped compounding specifically, our Stocks & Shares ISA calculator projects tax-free growth on the full £20,000 annual allowance and quantifies the wrapper saving versus a general investment account.
Three patterns this calculator surfaces clearly: 1. The first ten years of compounding matter more than the last ten — sequence matters far more than people expect 2. A 1% reduction in annual fees (platform + fund OCF) typically lifts a 30-year terminal balance by 20-30% 3. Using both ISA (£20k) and SIPP (£60k annual allowance) doubles your tax-protected envelope per year
For ISA rules, HMRC's ISA Manager Reference Manual and the gov.uk ISA pages are the authoritative sources.
| Year | Balance | Interest This Year | Total Contributions |
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How to use this calculator
Takes about 2 minutes.
- Enter your starting amount (principal) in the Starting Amount field
- Set the annual interest rate you expect to earn
- Pick the number of years you'll let the money grow
- Choose how often interest compounds — daily, monthly, quarterly, or yearly
- Add an optional monthly contribution and click Calculate to see your final balance and year-by-year growth
Try these scenarios
Tap a scenario to load it into the calculator above.
Methodology & Sources
This calculator implements the standard compound-interest formula: A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)]. Region-specific tax and rate defaults are sourced directly from each country's primary government source and reviewed against the publication date below.
- USA: IRS — federal income tax brackets and contribution limits.
- UK: GOV.UK — HMRC personal allowance, National Insurance, and dividend rates.
- SA: SARS — personal income tax brackets and tax rebates.
Last verified: May 2026.
Key concepts
Principal vs. interest. Your principal is the money you put in; interest is what the bank or market pays you for letting it sit. Compounding means the interest you earned in year one starts earning its own interest in year two — and the effect snowballs over decades.
Compounding frequency. Interest can be credited annually, monthly, or daily. More frequent compounding gives a slightly higher effective return, but the gap is small compared with what changing the headline rate or time horizon does.
Rule of 72. Divide 72 by your annual rate to estimate how many years it takes your money to double. At 7%, that's roughly 10 years; at 10%, about 7.
Real vs. nominal returns. A 7% nominal return with 3% inflation is only a 4% real return in purchasing-power terms. For long-horizon planning, focus on real returns. The U.S. S&P 500's long-run real return is about 7% before taxes (Federal Reserve and Robert Shiller data); UK investors modelling that return inside an ISA or SIPP via the LSE-listed accumulation ETFs (VUSA, VUAG, CSPX, SPXP) should use the dedicated UK S&P 500 calculator, which applies OCF drag and the GBP/USD currency view on top of the same compound-interest engine.
Tax wrappers matter. Compounding inside an ISA (UK), Roth IRA (US), or TFSA (SA) is tax-free; outside, interest is taxed annually at your marginal rate, which slows growth materially over 20+ years. For the US equivalent of the ISA-wrapper analysis on this page — comparing Roth, Traditional, and taxable brokerage growth under 2026 IRS contribution limits and federal marginal rates — see the IRS / US tax-aware compound interest calculator.
Frequently Asked Questions
UK savings + investing context
UK savers operate in a different rate and tax environment to the US. The Bank of England base rate sat at around 4.5% through late 2025 after the Monetary Policy Committee cut from the 5.25% peak of 2023-24. Easy-access savings rates from UK challenger banks tend to track 0.25–0.75% below base. Check the live figure on the Bank of England Bank Rate page before plugging a savings rate into the calculator above.
Where the UK genuinely beats most developed markets is the ISA. Every UK resident gets a £20,000 annual ISA allowance (split however you like between Cash, Stocks & Shares, Lifetime, and Innovative Finance ISAs). Growth and interest inside the wrapper are 100% tax-free, do not need to be reported on a Self Assessment return, and never count toward your Personal Savings Allowance or dividend allowance. The full rulebook lives in HMRC's ISA guidance on GOV.UK.
Outside an ISA, the Personal Savings Allowance shields a thin slice of interest from tax:
- Basic-rate (20%) taxpayers: £1,000 of interest tax-free each year.
- Higher-rate (40%) taxpayers: £500 tax-free.
- Additional-rate (45%) taxpayers: £0 — every penny of interest is taxed at marginal rate.
Premium Bonds from NS&I sit in their own category — no guaranteed return, but the prize fund rate of 4.15% (effective from late 2025) pays out tax-free with a £50,000 holding cap per person. They suit higher-rate taxpayers who have used their ISA allowance and want a tax-free home for cash.
Worked example: ISA vs taxable savings
Take a higher-rate taxpayer putting £400/month into a Stocks & Shares ISA at 7% nominal return for 25 years. The future-value-of-annuity formula gives a terminal balance of roughly £294,000 — entirely tax-free on withdrawal. Run the same £400/month through a General Investment Account: dividends above the £500 allowance get taxed at 33.75%, interest above the £500 PSA at 40%, and gains above the £3,000 CGT allowance at 24%. The realistic after-tax compound balance lands closer to £235,000–£245,000, depending on portfolio yield. The ISA wrapper is worth roughly £50,000 of terminal wealth on this one drip-feed scenario.
For couples, doubling up matters: £40,000 per household per tax year goes into ISAs if both spouses use their allowance. SIPPs add another £60,000 per person of tax-relieved pension contributions on top. Sources: GOV.UK ISA rules, GOV.UK Personal Savings Allowance, NS&I Premium Bonds.
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