How it works
Future value = principal × (1 + annual rate ÷ 12)^(12 × years).
A worked example
1,000 at 5% nominal annual interest, compounded monthly for 10 years, grows to about 1,647.01.
What to keep in mind
Assumes monthly compounding and a constant nominal rate. Excludes tax, inflation and fees; growth is not guaranteed.
How compound interest works
With compound interest, each month’s interest is added to the balance, and the next month’s interest is calculated on that larger balance. Over long periods, the interest on interest becomes a large part of the growth.
Worked examples
£10,000 at 5%, compounded monthly, grows to about £16,470 after 10 years and about £27,126 after 20 years. Doubling the time more than doubles the interest earned.
The power of time
£1,000 at 7% for 30 years grows to about £8,117. Starting early matters more than the amount: most of the growth comes in the later years.
The rule of 72
To estimate how long it takes money to double, divide 72 by the annual rate. At 6%, money doubles in roughly 12 years.
Frequently asked questions
How much will £10,000 grow in 10 years?
At 5% compounded monthly, about £16,470, with about £6,470 of interest.
What is the difference between simple and compound interest?
Simple interest is paid only on the original amount. Compound interest is also paid on interest already earned, so it grows faster.
How often is interest compounded?
Monthly. Enter a nominal annual rate, not an effective annual yield or AER.
For general information and planning, not personalised financial or tax advice. Verify important decisions with a qualified adviser.