Compound Interest Calculator

The Power of Compound Interest

Compound vs Simple Interest

Simple interest pays interest only on the original principal. Compound interest pays interest on the principal AND all previously earned interest. Over 20 years at 7%, £10,000 grows to £17,000 with simple interest — but £38,700 with annual compound interest. The difference grows exponentially with time: this is why starting early matters far more than starting with more money.

The Rule of 72

Divide 72 by your annual interest rate to estimate how long it takes to double your money. At 6%, money doubles in approximately 12 years. At 8%, it doubles in 9 years. At 4%, 18 years. This quick mental calculation lets you compare investment options instantly without a calculator.

Inflation — The Hidden Cost

Nominal return tells you what your balance will be in future pounds/dollars. Real return adjusts for inflation to show purchasing power. At 7% nominal with 2.5% inflation, your real return is approximately 4.4% — your money buys more, but less than the headline figure suggests. For long-term goals (retirement, university fees), always think in real returns.

Compounding Frequency

More frequent compounding generates slightly more return. £10,000 at 7% for 10 years: annually → £19,672, monthly → £20,097, daily → £20,137. The difference between monthly and daily compounding is minimal in practice — the rate matters far more than the frequency. ISAs and pension funds typically compound daily or monthly.