Skip to main content
GovMath.

Pensions & Investing · Monthly compounding

Compound Interest Calculator

See what regular saving plus compounding gets you over the long run. Run the numbers on different rates of return and time horizons — and see why starting early matters.

Your plan

£
£
%

Long-run UK equities have returned ~5% real.

yrs

Assumes monthly compounding. All numbers are in today’s pounds — inflation will erode real-terms value over time.

Future value after 20 years

£108,959

Breakdown

  • Total contributions
    £53,000
  • Interest earned
    What compounding adds on top of what you put in.
    £55,959
  • Final balance
    £108,959

Growth over time

YearContributionsInterestBalance
5£17,000£3,698£20,698
10£29,000£12,873£41,873
15£41,000£29,434£70,434
20£53,000£55,959£108,959

How we calculated your result

The classic compound-interest formula with regular deposits is:

FV = P(1+r/n)^(nt) + C · [((1+r/n)^(nt) − 1) / (r/n)]

Where P is the starting principal, C is the contribution each period, r is the annual rate, n is the number of compounds per year, and t is years. We use monthly compounding (n = 12) and assume contributions go in at the end of each month.

The magic happens in the second term: each contribution compounds for the remaining months, so the £200 you put in today is worth far more at year 30 than the £200 you put in in year 29.

Official UK rules in simple English

There aren’t any “official” UK rules for compound interest — the maths is the maths. What changes in real life is how the wrapper around it is taxed:

  • Stocks & Shares ISA: £20,000/year allowance. All growth, dividends and withdrawals are tax-free. Most long-term retail investing in the UK happens here.
  • Pension (SIPP/workplace): contributions get income-tax relief at your marginal rate. Growth is tax-free inside the pension. On withdrawal (age 55, rising to 57 in 2028), 25% is tax-free and the rest taxed as income.
  • General Investment Account (GIA): no shelter — dividends above the £500 allowance are taxed, and capital gains above the £3,000 allowance face CGT.

Our calculator shows nominal returns. Subtract inflation (typically 2–3% long-run) to see the real-terms purchasing power of your future balance.

Common pitfalls to watch out for

  • ⚠ Past returns are not a forecast

    UK equities have averaged ~5% real long-term, but with decades of underperformance and outperformance in between. Don’t plug in 10% and treat the output as a guarantee — model 4–6% and consider what happens at 0%.

  • ⚠ Inflation eats nominal growth

    A £500,000 pot in 30 years sounds enormous, but if inflation runs at 3% a year, that’s worth roughly £206,000 in today’s money. Always sense-check long projections against inflation.

  • ⚠ Fees compound too — in the wrong direction

    A 1% annual platform/fund fee sounds small, but over 30 years it can shave 25%+ off your final pot. Stick to low-cost index funds wherever possible, and check the OCF before you invest.

  • ⚠ Sequence of returns matters near withdrawal

    Two portfolios with the same average return can end up very differently if one suffers a crash early in withdrawal vs late. Compound interest is a useful planning tool — not a withdrawal strategy. Look up “sequence risk” before you retire.

Frequently asked questions

Should I use a SIPP, ISA, or both?
Both, generally. Workplace pensions are unbeatable up to the employer match (free money). Beyond that, ISAs offer flexibility (withdraw any time, tax-free), while SIPPs offer up-front tax relief but lock the money up until 57. A common pattern: match the employer in the pension, fill the ISA, then top up the pension further.
What return should I plug in?
For a diversified global equity portfolio, 4–6% real (after inflation) is a reasonable mid-case. Use 7–8% nominal if you want to model in inflation separately. Anything above 10% is optimistic for a long horizon.
Is monthly compounding realistic for investments?
Most index funds reinvest dividends quarterly or semi-annually, not monthly — and prices move continuously. Monthly compounding is a small simplification that has negligible impact at long horizons, and matches how most savings accounts and pension projections work.

Projections only. Investment values can fall as well as rise; you may get back less than you paid in. This is not personal financial advice.

Related calculators

More tools in Pensions & Investing.