Compound interest calculator
What is compound interest?
Ever heard the phrase ‘money makes money’? That’s compound interest.
Compound interest is where interest on a deposit or investment is reinvested, so the interest in the next period is earned on the principal plus the interest previously earned. That creates exponential growth and means your money is really working for you.
Over time, compound interest can mean that your investments grow significantly. Compound interest can be calculated based on any period - daily, monthly, quarterly or annually for example. But the longer you leave your investments to compound, the better chance you have of them growing.
You’ll be able to see how your investments may perform thanks to compound interest with our handy compound calculator.
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How to calculate compound interest?
Use this handy calculator to see how your money might grow. You can calculate the compound interest if your money is in a savings account with a fixed interest, or if you were to choose to invest monthly to make the most of your money.
Our compound interest calculator includes options for:
- daily compounding
- monthly compounding
- quarterly compounding
- half yearly and yearly compounding
See how your passive investments could grow thanks to compound interest.
The value of your investments may go down as well as up. Tools provided are for information only. We do not offer investment advice, and will not be liable for any monetary losses arising in connection with this compound interest calculator. Seek professional advice if you want to learn more about investment opportunities.
What is the formula for compound interest?
The formula for compound interest, including principal sum, is:
A = P (1 + r/n) (nt)
A = the future value of the investment
P = the principal investment amount
r = the interest rate (decimal)
n = the number of times that interest is compounded per period
t = the number of periods the money is invested for
It's worth noting that this formula gives you the future value of an investment, which is compound interest plus the principal.
Compound interest example.
The easiest way to understand compound interest is to look at an example. Let’s say you have an investment of £10,000, and do not make any further contribution to this fund. If you earned a fixed interest, and did not make withdrawals, the growth of the fund would look something like the table on the right.
To calculate the year 5 interest amount based on a 10% annual interest, you’ll need to use the formula explained above:
A = P(1+r/n)(nt)
In this case:
- P (principal investment) = 10000
- R (rate of return) = 10/100 = 0.1 (decimal)
- n (times the interest compounds per period)= 1
- t (number of periods) = 5
So, the balance after 5 years is £16,105.10.
If you were to withdraw the interest annually you’d earn the same amount every year. That’s simple interest. However, by leaving the money to grow, you earn interest on the interest - meaning you get more every year, and can watch your investments grow exponentially.
Compound interest example.
| Year | Interest calculation | Interest earned | End balance |
|---|---|---|---|
Year 1 | £10,000 x 10% | £1,000 | £11,000 |
Year 2 | £11,000 x 10% | £1,100 | £12,100 |
Year 3 | £12,100 x 10%£ | £1,210 | £13,310 |
Year 4 | £13,310 x 10% | £1,331 | £14,641 |
Year 5 | £14,641 x 10% | £1,464.10 | £16,105.10 |
Compound interest FAQ
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