Compound Interest Calculator UK 2025 | Savings Growth
Free UK Compound Interest Calculator 2025. See how your savings grow with ISAs, fixed-rate bonds and regular savings accounts at current UK rates.
Last updated: February 2026
Compound Interest Calculator
Calculate how your savings grow over time with compound interest at current UK rates. Compare ISAs, bonds and savings accounts.
Total Value After - Years
Understanding Compound Interest
Compound interest is often called the eighth wonder of the world, and for good reason. It is the process of earning interest on both your original deposit and on the interest you have already accumulated. Over time, this creates a snowball effect that can significantly grow your savings.
How Compound Interest Works
Suppose you deposit £1,000 at 5% annual interest. After the first year, you earn £50 in interest, giving you £1,050. In the second year, you earn 5% on £1,050 (not just £1,000), which is £52.50. Each year, the interest grows because it is calculated on an ever-increasing balance.
Simple Interest vs Compound Interest
With simple interest, you only earn interest on the original principal. With compound interest, you earn interest on interest. Over 20 years at 5%, £10,000 grows to £20,000 with simple interest but £26,533 with compound interest -- that is an extra £6,533 purely from the compounding effect.
The Power of Compounding Frequency
The more frequently interest compounds, the more you earn. Here is how £10,000 at 5% grows over 10 years with different frequencies:
- Annually: £16,288.95
- Quarterly: £16,386.16
- Monthly: £16,470.09
- Daily: £16,486.65
UK Savings Accounts and Interest Rates
Understanding the different types of UK savings accounts helps you choose the right one for your compound interest strategy. Here is a comparison of the main options available in 2025/26:
| Account Type | Typical Rate (2025) | Access | Tax Treatment |
|---|---|---|---|
| Easy-Access Savings | 4.0% - 5.0% AER | Instant | PSA applies |
| Cash ISA | 4.0% - 5.0% AER | Varies | Tax-free |
| Fixed-Rate Bond (1yr) | 4.5% - 5.2% AER | Locked | PSA applies |
| Fixed-Rate Bond (2yr) | 4.2% - 4.8% AER | Locked | PSA applies |
| Regular Saver | 5.0% - 8.0% AER | Limited | PSA applies |
| Notice Account (90 days) | 4.5% - 5.0% AER | 90 days notice | PSA applies |
Cash ISAs Explained
A Cash ISA (Individual Savings Account) lets you save up to £20,000 per tax year (2025/26 allowance) and all interest earned is completely tax-free. This makes ISAs particularly valuable for higher-rate and additional-rate taxpayers whose Personal Savings Allowance is £500 or £0 respectively.
Personal Savings Allowance (PSA)
The PSA lets you earn interest tax-free outside of an ISA:
- Basic rate taxpayer (20%): £1,000 tax-free interest per year
- Higher rate taxpayer (40%): £500 tax-free interest per year
- Additional rate taxpayer (45%): No allowance
Tips for Maximising Compound Interest
Start Early
Time is the most powerful factor in compounding. Starting 10 years earlier with less money often beats starting later with more. A 25-year-old saving £200/month at 5% will have £304,000 by 65 -- a 35-year-old would need £380/month for the same.
Reinvest All Interest
Never withdraw your interest if you do not need it. Reinvesting interest is the entire mechanism behind compounding. Many accounts automatically reinvest, but some pay to a separate account -- check yours.
Make Regular Contributions
Even small regular deposits dramatically boost the compounding effect. Adding £100/month to a £10,000 deposit at 5% over 20 years adds £41,000 to your total versus the lump sum alone.
Use Your ISA Allowance
Maximise your £20,000 annual ISA allowance. Tax-free growth means every penny of interest stays in your account, compounding year after year without any deductions.
Compare Rates Regularly
Savings rates change frequently. Review your accounts every 6-12 months and switch if a better rate is available. Loyalty rarely pays with savings -- new customer rates are often highest.
Consider Fixed-Rate Bonds
If you do not need immediate access, fixed-rate bonds often offer higher rates. Locking away money for 1-2 years guarantees a rate and removes the temptation to withdraw.
Compound Interest Examples
Example 1: Lump Sum in a Cash ISA
Sarah deposits £15,000 into a Cash ISA paying 4.5% AER, compounded annually, for 5 years with no additional contributions:
- Year 1: £15,675.00
- Year 2: £16,380.38
- Year 3: £17,117.49
- Year 4: £17,887.78
- Year 5: £18,692.73
Total interest earned: £3,692.73 (all tax-free in the ISA).
Example 2: Regular Monthly Savings
James saves £300 per month into a savings account at 4.8% AER, compounded monthly, for 10 years:
- Total deposited: £36,000
- Interest earned: £9,802
- Final value: £45,802
Example 3: Long-Term Growth
Emma deposits £5,000 and adds £150/month at 5% AER compounded annually for 25 years:
- Total deposited: £50,000
- Interest earned: £39,747
- Final value: £89,747
Frequently Asked Questions
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns on the original deposit, compound interest means your money grows exponentially over time. For example, £10,000 at 5% simple interest earns £500 every year. With compound interest, year one earns £500, year two earns £525 (5% of £10,500), and so on.
Most UK savings accounts compound interest annually, which is reflected in the AER (Annual Equivalent Rate). Some accounts, particularly easy-access and money market accounts, may compound monthly or quarterly. The AER standardises this so you can compare accounts fairly. Check your account terms to see whether interest is paid annually, monthly or quarterly.
The gross rate is the basic interest rate before compounding is considered. The AER (Annual Equivalent Rate) shows what you would effectively earn over a full year when compounding is taken into account. If interest compounds more than once a year, the AER will be slightly higher than the gross rate. For annual compounding, the gross rate and AER are the same. All UK banks must display the AER to allow fair comparison.
Most UK savers pay no tax thanks to the Personal Savings Allowance (PSA). Basic rate taxpayers can earn up to £1,000 in interest tax-free, and higher rate taxpayers up to £500. Additional rate taxpayers have no allowance. ISA interest is always completely tax-free. If your interest exceeds the PSA, HMRC adjusts your tax code to collect the tax owed automatically.
UK savings rates in 2025 are relatively strong compared to recent years. Easy-access accounts offer around 4.5-5.0% AER, one-year fixed-rate bonds offer 4.5-5.2%, and Cash ISAs offer 4.0-5.0%. Regular saver accounts from high street banks can offer 6-8% but usually cap monthly deposits at £250-£300. Rates change frequently, so compare using sites like MoneySavingExpert or Moneyfacts.
At 5% AER compounded annually, £10,000 grows to approximately £16,289 after 10 years, earning £6,289 in interest. At 4%, it becomes £14,802. At 3%, it reaches £13,439. Adding monthly contributions dramatically increases the total. For instance, adding £100/month at 5% means £10,000 grows to £31,764 over 10 years.
It depends on your tax situation. If your total savings interest stays within the Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate), a regular account might offer a slightly higher rate. However, if your interest exceeds your PSA, or you are an additional rate taxpayer, an ISA's tax-free status is more valuable. For long-term savings, ISAs are generally the better choice as your pot grows.
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Last updated: February 2026 | Reviewed for accuracy with current UK savings rates
Expert Reviewed -- This calculator is reviewed by our team of financial experts and updated regularly with the latest UK savings rates and regulations. Last verified: February 2026.
💡 Pro Tips for Accurate Results ▼
- Use the AER rate shown on your savings account, not the gross rate
- Check whether your account compounds monthly, quarterly or annually
- For ISA calculations, remember the £20,000 annual contribution limit
- Bookmark this page for quick future access
✅ Understanding Your Results ▼
Our Compound Interest Calculator provides:
- Year-by-year breakdown showing how your balance grows
- Total interest earned separated from your deposits
- AER comparison to help you evaluate different accounts
- 2025/26 updated with current UK savings rates
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