UK money guide
How compound interest is calculated on a UK savings pot
Published · Free UK Tools editorial
Compound interest is interest on the original sum and on interest already added. A monthly standing order on top of that is a second engine: each contribution starts its own, shorter compounding life. The result is not “rate × years × what I paid in.” That shortcut is how a savings target comes out thousands low.
This guide uses the same model as our free compound-interest calculator: starting amount, monthly contribution, annual rate, years, and compounding frequency. The headline walk-through is the helper’s default — £5,000 plus £200 a month at 5% for 10 years, compounded monthly. Future value £39,291.50. You put in £29,000. Interest £10,291.50. It is not a product quote, not an ISA wrapper, and not a forecast. Fees, tax and inflation sit outside the formula.
Lump sum, then a level contribution, at a rate per period
Convert the annual rate to a rate per compounding period (annual ÷ times-per-year). Convert the term to a number of periods (years × times-per-year). Monthly contributions are turned into an equivalent amount per period: (monthly × 12) ÷ times-per-year. With monthly compounding that equivalent is simply the monthly figure. With annual compounding it is twelve months of saving, applied once at the end of each year.
Future value = starting amount × (1 + r)^n, plus the ordinary-annuity sum of those contributions: contribution-per-period × [((1 + r)^n − 1) ÷ r]. If the rate is 0%, it is just starting amount plus everything you paid in. Interest earned is future value minus total contributed. Total contributed is starting amount + monthly × 12 × years — the cash that left your account, not the compounded result.
Worked default: £5,000 + £200 a month at 5% for 10 years
Monthly compounding. Period rate r = 0.05 ÷ 12. Periods n = 120. Contribution per period = £200. The helper’s default.
The £5,000 lump on its own would be £8,235.05. The £200-a-month stream on its own would be £31,056.46. Together £39,291.50. You put in £5,000 + (£200 × 12 × 10) = £29,000. Interest is £10,291.50. Growth multiple 1.35×. That is the FAQ figure on the tool page.
A naive 5% × 10 × £29,000 = £14,500 of “interest” is the wrong picture twice: it treats the whole £29,000 as if it had been there for ten years, and it ignores compounding. Most of the monthly pounds were not in the pot on day one.
| Piece | You put in | Future value | Interest |
|---|---|---|---|
| £5,000 lump only | £5,000.00 | £8,235.05 | £3,235.05 |
| £200/month only | £24,000.00 | £31,056.46 | £7,056.46 |
| Both together (default) | £29,000.00 | £39,291.50 | £10,291.50 |
| Same cash, 0% rate | £29,000.00 | £29,000.00 | £0.00 |
Same default as this site’s compound-interest calculator (monthly compounding unless stated).
Compounding frequency moves the needle less than rate or time
Keep £5,000 + £200 a month at 5% for 10 years and only change how often interest is added. Annually: £38,331.42. Quarterly: £39,111.83. Monthly (the default): £39,291.50. Daily: £39,379.24. Daily versus monthly is £87.74. Annual versus monthly is £960.08. Frequency is real; it is not the main lever.
The example buttons on the helper do not change frequency — they leave it on monthly, which matches most UK savings accounts and many investment platforms’ unit dealing. Use the dropdown when you are comparing a genuine annual-interest bond with a monthly-interest account at the same advertised rate.
| Frequency | Future value | Interest | Versus monthly |
|---|---|---|---|
| Annually | £38,331.42 | £9,331.42 | −£960.08 |
| Quarterly | £39,111.83 | £10,111.83 | −£179.67 |
| Monthly (default) | £39,291.50 | £10,291.50 | — |
| Daily | £39,379.24 | £10,379.24 | +£87.74 |
Same £5,000 + £200/month · 5% · 10 years — only compounding frequency changes (this site’s calculator).
A lump, and a standing order from zero
£10,000, no monthly contribution, 4% for 5 years, monthly compounding — the second example button. Future value £12,209.97. Interest £2,209.97. The same lump compounded annually is £12,166.53. Five years is short enough that frequency barely shows.
£0 starting amount, £100 a month, 7% for 20 years, monthly — the third button. You put in £24,000. Future value £52,092.67. Interest £28,092.67. Growth 2.17×. Time and a higher rate do more work here than the default’s extra £5,000 lump did in ten years at 5%.
Inflation is a different calculator, on purpose
This helper reports pounds in the year the term ends, not today’s shopping basket. A pot that compounds at 5% while prices rise at 3% is not a 5% improvement in what you can buy. That haircut is the inflation calculator: real annual return (1.05 ÷ 1.03) − 1 = 1.94% on those two rates, using a lump and no monthly contribution.
The two tools are not wired together. Project a pot here, then — if you want a rough real-terms view — use the inflation page with a lump and an assumed rate. Do not subtract inflation from 5% on paper and expect the helper to match; it never deducted it.
What this walk-through leaves out on purpose
ISA and pension tax wrappers. A Cash ISA or stocks-and-shares ISA can change whether interest or gains are taxed; a workplace pension is a different contribution and relief system (see the salary-sacrifice guide). This formula does not know which wrapper you use.
Platform fees, fund charges, product fees, bonus rates that expire, variable rates, and sequence-of-returns risk on investments that can fall. Contributions are modelled at the end of each compounding period, not the first day of the month. AER on a real account already folds in compounding — do not add a frequency on top of an AER unless you know the quoted rate is nominal.
How to use this on the site
Open the compound-interest calculator. Enter a starting amount (0 if you only save monthly), a monthly contribution (0 for a lump), an annual rate and a term. Leave compounding on monthly unless you are matching a product that truly adds interest less often. Read future value, total contributed, interest and the growth multiple. Nothing you type is stored.
Then, if you care what those future pounds buy, run the inflation calculator. Income Tax is on earnings, not on this projection. A loan repayment is the other direction — money leaving, not compounding in. This page is not a substitute for a product illustration with fees and AER on it.
Related calculators
Run the numbers after reading — nothing you type is stored.
Official sources
Frequently asked questions
How much is £5,000 plus £200 a month at 5% after 10 years?
What formula does this use?
Does monthly compounding make a big difference?
Can I model only monthly saving with no lump sum?
Does this include inflation, tax or fees?
Are returns guaranteed?
Is my data stored?
Guidance only — not financial, tax or legal advice. Confirm important figures with official sources or a qualified professional. See how we build calculators on the methodology page.
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