See the power of compound interest with this free UK compound interest calculator. Help plan for your financial goals by entering a few details. Visualize the effect compound interest has on your investments and savings in the UK.
What is compound interest?
It is important to understand the power of compound interest and how it can help you achieve your financial goals in the UK. Compound interest is when you earn interest on your initial investment which is then reinvested so you then earn interest on your initial investment as well as the interest generated. The impact from earning interest on your already earned interest is referred to as compounding interest which allows the growth of your money to take off. The earlier you can start investing the more time your investments will have to grow.
Let’s walk through an example to better understand how compound interest works. We will work through an example where an investor invests £1000 which will earn 10% interest each year it is invested.
| Year | Start Total | Interest Earned | End Total |
|---|---|---|---|
| 1 | £1,000 | £100 (£1,000 X 10%) | £1,100 |
| 2 | £1,100 | £110 (£1,100 X 10%) | £1,210 |
| 3 | £1,210 | £121 (£1,210 X 10%) | £1,331 |
As you can see with the same amount invested the interest earned is more and more each year. This is the power of compouding. It will take time for this impact to really help you save and reach your financial goals. It is important to invest early to let the power of compounding work.
How to use this compound interest calculator
Start by entering your initial investment amount as well as any regular contributions that you will make. Next enter the timeframe that you will have your money invested for as well as the expected interest rate you think you will earn. This will provide you with an estimate on the total amount of money that you will have at the end of the investment period. You will be able to see a breakdown between your total contributions and the interest that these contributions earned.