Calculate how much your savings will be worth in the years to come with our compound interest calculator.
Compound Interest Calculator
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Interest: £0.00
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The best high interest savings and current accounts.
Looking for the best interest rates around? They typically won’t be found at a high street bank. That’s why we’ve rounded up the best easy access digital savings accounts and high interest current accounts.
Including high interest products from Trading 212, Plum, Chip, and Monzo.
Get more with Trading 212
Trading 212 offers 3.8% AER on uninvested deposits making it one of the highest paying easy access accounts around.
If you open an acocunt via our link and enter code "MSA212" you'll get a free fractional share worth up to £100
What is compound interest?
Compound interest is the interest calculated on the initial principal as well as the accumulated interest from previous periods. It’s like a snowball rolling downhill, gathering more snow as it goes. Interest added to both your original money and the interest it earns over time. This makes your savings grow faster over time.
How does compound interest work in practice?
Imagine you have £1000 to save. You decide to deposit it into a s top savings account offering a 5% annual interest rate.
In the first year, the interest on your £1000 is £50, calculated as 5% of £1000. So, by the end of the year, your total balance becomes £1050, which includes your initial deposit of £1000 plus the £50 interest earned.
Now, here’s where compound interest starts to work its magic. In the second year, you earn interest not just on your initial £1000, but also on the £50 interest you earned in the first year.
At the end of the second year, you earn 5% interest on £1050, which amounts to £52.50. Your total balance now becomes £1102.50.
This process continues to repeat itself each year, with your interest being calculated on an increasingly larger sum of money. After three years, your balance would be £1157.63, after four years it would be £1215.51, and so on. As you can see, the growth accelerates over time, thanks to the compounding effect.
Compounding debt
Conversely, let’s consider the impact of compound interest on debt. If you borrow £1000 at a 10% interest rate, you owe £1100 at the end of the first year. However, if the interest compounds annually, the next year, you owe 10% on £1100, resulting in a total debt of £1210. This cycle continues, and your debt grows larger with each compounding period.
These examples highlight how compound interest can either work for you, in the case of savings, or against you, in the case of debt, emphasizing the importance of understanding and leveraging this financial concept wisely.
Where can I find best compound interest savings deals?
Looking to jump start your savings? Check out our round up of the best digital savings accounts for compounding, and enjoy the returns.
Is it better to have monthly interest?
Earning returns on top of money you’ve already earned is called compounding. This allows savings and investments to snowball over time as you get a return on your return.
When the interest is calculated and paid can make a difference to this figure. Interest being paid monthly, or even daily, rather than yearly can make a difference to the amount you earn.
This is taken into account, and to make calculations easier, all savings accounts list the interest rate as AER.
What is AER?
AER or Annual Equivalent Rate, shows you what you could earn from your savings or investment account over a year. It’s a complicated formula that takes compounding into account, but because it’s used by all UK providers, it means you can confidently compare savings account even when the payment periods differ.
Love this tool? Also see our Mortgage calculator and find out how much your mortgage actually costs and optimise your re-payments.