Compound Interest Calculator

Why compounding beats intuition

Simple interest pays only on the original amount. Compound interest pays on the amount *plus* all interest already earned, so the balance grows on a curve rather than a line.

£10,000 at 7% for 30 years:

• Simple interest — £31,000
• Compounded annually — £76,123

The extra £45,000 is interest earning interest. Nothing was added; only the compounding differs.

Frequency matters less than people expect

More frequent compounding helps, but with diminishing returns. £10,000 at 5% for 10 years:

The gap between annual and monthly is real; between daily and continuous it is negligible. Rate and time dominate frequency by a wide margin.

The Rule of 72

Divide 72 by the annual rate to approximate the doubling time. At 6%, money doubles in about 12 years. At 9%, about 8. It is accurate enough for mental arithmetic in the 4–12% range and is the fastest way to sanity-check any growth claim.

Time is the variable that matters most

Two savers, both contributing £200 a month at 7%:

• Starts at 25, stops at 35 — contributes £24,000, has about £300,000 at 65
• Starts at 35, contributes until 65 — contributes £72,000, has about £244,000

The first saver contributes a third as much and ends up with more, purely because the money had ten extra years to compound. This is the strongest argument for starting early that exists.

What erodes it

• Inflation. A 7% return with 3% inflation is roughly 4% in real terms.

Always reason in real returns for long horizons.

• Fees. A 1% annual fee sounds small and removes roughly a quarter of the

final balance over 30 years, because the fee compounds too.

• Tax on gains, unless the account is sheltered.

Related tools

• Investment calculator for regular contributions
• Retirement calculator for drawdown planning
• Inflation calculator for real purchasing power