Compound Interest Calculator

How to use the Compound Interest Calculator

1. Enter your starting amount, expected annual return and the number of years.
2. Add a regular contribution and choose how often you pay it in.
3. Optionally set an inflation rate to see the result in today's purchasing power.

The formula

For a lump sum with no contributions:

A = P × (1 + r/n)^(n×t)

where P is the starting amount, r the annual rate as a decimal, n the number of compounding periods per year and t the years. Adding regular contributions turns this into a future-value-of-an-annuity calculation, which is why this tool simulates the balance day by day — it lets the contribution schedule differ from the compounding schedule, as it usually does in real accounts.

The rule of 72 gives a quick mental check: divide 72 by the rate to get the doubling time. At 6%, money doubles in roughly 12 years.

Why compounding frequency matters less than you think

On £10,000 at 6% for one year, annual compounding yields £600 and daily compounding yields £618. That £18 gap is the entire benefit of moving from yearly to daily. Beyond daily, the effect is negligible — continuous compounding, the mathematical limit, adds fractions of a penny.

The rate matters enormously more than the frequency. One extra percentage point of return over 30 years dwarfs any compounding schedule. When comparing accounts, look at the effective annual rate (AER or APY), which already folds compounding in.

Inflation and the honest number

A balance of £500,000 in 30 years is not £500,000 of today's spending power. At 3% inflation it buys roughly what £206,000 buys now. That is not a rounding detail — it is more than half the headline figure.

Setting an inflation rate above shows the real (inflation-adjusted) balance alongside the nominal one. A reasonable approach is to enter a real return directly — historic long-run equity returns are often quoted around 5–7% after inflation — and leave the inflation field at zero.

Frequently asked questions