Start with a £10,000 deposit, add £500 every month, and assume a 6 percent annual return compounded monthly over 20 years. The opening £10,000 grows on its own to about £33,102. The stream of £500 monthly contributions, each compounding from the month it is paid in, grows to roughly £232,176. Together the pot reaches £265,278. You will have paid in £130,000 of your own money, so the interest and growth element is £135,278, slightly more than you contributed. That is a 2.04 times multiplier on everything you put in, and the gap widens fast in the later years.
How it is calculated
Compound growth is split into two parts that are added together. The initial deposit grows by the future-value formula, the starting amount times (1 plus the monthly rate) raised to the number of months. The regular contributions use the future value of an annuity, where each monthly payment compounds for the months remaining, and because the payment is treated as made at the start of each month the whole series is multiplied by one extra month of growth. The monthly rate is the annual return divided by 12 and the number of periods is the years times 12. Total contributed is the deposit plus every monthly payment, and the interest earned is simply the final value minus what you put in. Figures are gross, so returns inside an ISA or pension are tax-free while taxable savings would lose part of the growth to tax.
Frequently asked questions
Tax-free options?
Interest inside Cash ISA or growth inside Stocks & Shares ISA is tax-free, this calculator shows gross figures. For taxable savings, deduct interest tax based on your Personal Savings Allowance (£1,000 basic-rate, £500 higher-rate, £0 additional-rate).
How often should I compound interest for the best result?
More frequent compounding produces a higher final value. Monthly compounding (used in this calculator) is standard for UK savings accounts and ISAs. The difference between monthly and daily compounding is small, but both outperform annual compounding over long periods.
Does inflation affect my compound interest projections?
Yes. If your annual return is 6% and inflation runs at 2-3%, your real purchasing power grows at roughly 3-4% per year. To find your inflation-adjusted return, subtract the inflation rate from the nominal rate before entering it into the calculator. This gives a more conservative but realistic picture of future wealth.
What happens to compound interest if I miss a monthly contribution?
Missing a contribution simply reduces the total amount contributed and the future value proportionally. The interest already earned on previous contributions is unaffected because it has already compounded. Over a long horizon, even a few missed payments have a small impact, but consistent contributions are what drive most of the growth.