Compound interest is often called the eighth wonder of the world — and for good reason. It is the single most powerful force in personal finance, whether it is working for you in savings or against you in debt.
Simple interest earns interest only on the original principal.
Compound interest earns interest on the principal AND on previously earned interest — it snowballs.
You invest £10,000 at 7% annual return for 20 years.
| Year | Simple Interest | Compound Interest |
|---|---|---|
| 1 | £10,700 | £10,700 |
| 5 | £13,500 | £14,026 |
| 10 | £17,000 | £19,672 |
| 20 | £24,000 | £38,697 |
| 30 | £31,000 | £76,123 |
After 30 years, compound interest produces £45,123 more than simple interest on the same £10,000 investment.
A = P(1 + r/n)^(nt)
Divide 72 by the annual interest rate to find how many years it takes to double your money. At 7%: 72 ÷ 7 = 10.3 years to double. At 4%: 72 ÷ 4 = 18 years.
| Compounding | £10,000 after 10 years at 5% |
|---|---|
| Annual | £16,289 |
| Quarterly | £16,436 |
| Monthly | £16,470 |
| Daily | £16,487 |
Credit card debt compounds monthly. A £5,000 balance at 25% APR, making only minimum payments, can take over 20 years to repay and cost more than £12,000 in total interest. Always pay more than the minimum.
See exactly how your savings or investment grows over time with our compound interest calculator.
Compound Interest Calculator