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Compound Interest Formula:
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Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It's often described as "interest on interest" and can cause wealth to grow exponentially over time.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much your savings will grow based on the principal amount, interest rate, compounding frequency, and time period.
Details: Understanding compound interest is crucial for long-term financial planning. It demonstrates how regular savings can grow significantly over time, especially when starting early and allowing interest to compound.
Tips: Enter your initial deposit amount in GBP, the annual interest rate (up to 4.84% as of September 2025), select how often interest is compounded, and the time period in years. All values must be positive numbers.
Q1: What are the best savings rates in the UK?
A: As of September 2025, the best savings rates in the UK reach up to 4.84% per annum according to Moneyfacts data.
Q2: How often should interest compound?
A: The more frequently interest compounds, the more you'll earn. Daily compounding typically yields the highest returns, followed by monthly, quarterly, semi-annually, and annually.
Q3: Is compound interest better for long-term savings?
A: Yes, compound interest has the most significant impact over longer time periods, as the interest itself earns interest, creating exponential growth.
Q4: Are there any risks with high-interest savings accounts?
A: While savings accounts are generally low-risk, it's important to ensure your bank is protected by the Financial Services Compensation Scheme (FSCS) which protects up to £85,000 per person, per institution.
Q5: Should I consider inflation when calculating returns?
A: Yes, for a true understanding of your purchasing power, you should consider the real rate of return (nominal interest rate minus inflation rate).