Tax Calculate

    Compound Interest Calculator UK

    Savings Details

    ISA: all interest and gains grow completely tax-free. Annual allowance £20,000 (2026/27). Ensure your monthly contributions stay within the annual limit.

    Projected Growth
    Final balance
    £109,333
    Total deposited
    £58,000
    Interest earned
    £51,333
    Effective return
    88.5%
    Total depositedInterest earned

    How Compound Interest Works

    Compound interest means earning interest on your original money and on the interest already added. Over time, this creates a growth effect where the balance can accelerate, especially when you keep adding regular monthly contributions.

    Compounding frequency affects growth because interest is added more often. Daily compounding is slightly stronger than monthly, and monthly is stronger than annual, although the rate and time period usually matter more than the frequency alone.

    Starting early is powerful because time gives compound growth room to work. £10,000 invested at 5% annually for 20 years with no contributions grows to approximately £26,533. With monthly compounding and £200/month contributions, the same scenario reaches over £90,000.

    UK Tax Wrappers for Savings and Investments

    Cash ISA / Stocks & Shares ISA

    ISA interest and gains are tax-free, with a £20,000 annual allowance for 2026/27. Withdrawals are not taxed, making ISAs useful for accessible savings and investment growth.

    Pension (SIPP)

    SIPPs offer tax relief on contributions and tax-free growth inside the pension. Access is normally from age 55, rising to 57 from 6 April 2028, and withdrawals are taxed as income after the 25% tax-free lump sum.

    Taxable Savings Account

    Interest above the Personal Savings Allowance may be taxed. The PSA is £1,000 for basic rate, £500 for higher rate, and £0 for additional rate taxpayers. Capital gains may also apply to investments.

    Example Scenarios

    ScenarioInitial depositMonthlyRateYearsWrapperFinal balance
    Young saver£5,000£1004.5%30ISA~£97,000
    House deposit£15,000£5004%5ISA~£52,000
    Retirement pot£20,000£4006%25SIPP~£340,000
    Rainy day fund£2,000£503.5%10Taxable~£11,500

    Figures are illustrative estimates. Actual returns will vary.

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    Compound Interest Calculator FAQs

    What is compound interest?+
    Compound interest is interest calculated on both your initial deposit and the interest already accumulated. Unlike simple interest, which only applies to the original sum, compound interest causes your savings to grow exponentially over time, often described as interest on interest.
    How often should interest compound for best results?+
    The more frequently interest compounds, the faster your savings grow. Daily compounding produces slightly more than monthly, which produces more than annual. However, the difference between daily and monthly compounding is small in practice. The interest rate and time period have a much greater impact.
    Is compound interest tax-free in the UK?+
    It depends on where your savings are held. Inside a Cash ISA or Stocks & Shares ISA, all interest and gains are completely tax-free. In a taxable account, interest above your Personal Savings Allowance (£1,000 for basic rate taxpayers in 2026/27) is subject to Income Tax.
    What is the Personal Savings Allowance (PSA)?+
    The PSA is the amount of interest you can earn each year before paying tax. In 2026/27, basic rate taxpayers can earn up to £1,000 in savings interest tax-free. Higher rate taxpayers have a £500 allowance. Additional rate taxpayers receive no PSA.
    What is the ISA allowance for 2026/27?+
    The annual ISA allowance for 2026/27 is £20,000. You can split this across multiple ISA types, including Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA, as long as the total does not exceed £20,000 in a single tax year.
    How is a SIPP different from an ISA for saving?+
    A SIPP (Self-Invested Personal Pension) gives you upfront tax relief on contributions. HMRC adds 20% on top of what you pay in, and higher rate taxpayers can claim additional relief. However, you cannot access the money until age 57, and withdrawals are taxed as income beyond the 25% tax-free lump sum. An ISA offers no upfront tax relief but full flexibility to withdraw at any time.
    Can I use this calculator for investments as well as savings?+
    Yes. While the calculator uses interest rate terminology, you can enter an expected annual return to model investment growth, for example 7% for a long-term global equity portfolio. Remember that investment returns are not guaranteed and values can fall as well as rise.
    Results are illustrative estimates only. Tax treatment depends on individual circumstances. Consult a qualified financial adviser for personalised advice.

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    Savings and investment growth often interacts with tax wrappers, dividends, gains and pension planning. use the dividend tax calculator for investment income, use the capital gains tax calculator for investment disposals and use the pension tax relief calculator for retirement contributions.

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