💰 Compound Interest Calculator UK 2026
Updated April 2026 — monthly contributions, inflation, fees and UK tax wrapper
How compound interest works — UK guide 2026
Compound interest is interest calculated on both your initial deposit and the interest you have already earned. Unlike simple interest, which only applies to your original sum, compound interest means your money grows at an accelerating rate over time — the longer you leave it, the more powerful the effect becomes.
The compound interest formula
The standard formula for compound interest is: A = P(1 + r/n)^(nt)
- A = final amount
- P = principal (starting amount)
- r = annual interest rate (decimal)
- n = compounding frequency per year
- t = time in years
Compounding frequency explained
The more frequently interest compounds, the more you earn. A 5% rate compounding monthly produces a higher return than 5% compounding annually. The effective annual rate (EAR) on a 5% nominal rate compounding monthly is 5.116%.
ISA vs SIPP vs taxable account
For most UK savers, the wrapper matters as much as the rate. An ISA shelters all growth from tax indefinitely. A SIPP gives upfront tax relief on contributions but taxes withdrawals as income. A taxable account offers no shelter — interest above your Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate) is taxed at your marginal rate. Find a regulated IFA in the Kaeltripton Financial Index.
How fees affect your final pot
Platform and fund fees compound against you. Over 30 years, the difference between a 0.25% and 0.75% fee on a £10,000 investment growing at 6% is over £15,000 in lost returns.
Inflation and real returns
A nominal return of 5% during 3% inflation delivers a real return of approximately 2%. For long-term planning, the real return is the number that matters.
Rule of 72: Divide 72 by your annual interest rate to estimate how many years to double your money. At 5%, your money doubles every 14.4 years.
This calculator is for illustrative purposes only and does not constitute financial advice. Always verify rates directly with your provider before making any savings or investment decision.
Frequently asked questions
What is compound interest?
Compound interest is interest calculated on your initial deposit plus all previously earned interest. Compounding accelerates growth because each interest payment becomes part of the balance that earns future interest.
Is compound interest taxable in the UK?
Yes, in a taxable account. Interest above your Personal Savings Allowance (£1,000 basic rate, £500 higher rate, £0 additional rate) is taxed at your marginal income tax rate. Inside an ISA, all interest and growth is tax-free.
What is a good interest rate in the UK?
As of April 2026, easy-access cash savings accounts pay around 4.5–5% AER. Fixed-rate bonds pay up to 5.3% for a two-year term. UK equities have historically returned around 7–8% annually before inflation.
What is the Rule of 72?
Divide 72 by your annual interest rate to estimate how many years it takes your money to double. At 5% it takes approximately 14.4 years. At 7%, approximately 10.3 years.
Sources and verification
- HMRC — Personal Savings Allowance rules 2026-27
- HMRC — ISA subscription limit 2026-27: £20,000
- Bank of England — base rate 3.75% (held March 2026)
- Moneyfacts — average easy-access savings rate, April 2026
