How compound interest works
Each month the interest is added to your balance, and the next month's interest is earned on the bigger balance. Over long periods this "interest on interest" can be worth more than the deposits themselves.
P = starting amount, D = monthly deposit, r = yearly rate ÷ 12, n = months
Worked example
Starting with £5,000 and adding £200 a month at 4% for 10 years, you pay in £29,000 and end with £36,904.12: £7,904.12 of that is interest. A one-off £10,000 at 5% for 10 years, compounded monthly, grows to £16,470.09.
Tax on savings interest
- Cash ISA: interest is tax free, up to the yearly ISA allowance.
- Personal Savings Allowance: basic rate taxpayers can earn some interest tax free each year, higher rate taxpayers less, additional rate taxpayers none. Check GOV.UK for the current amounts.
Frequently asked questions
How much will £10,000 grow in 10 years?
At 5% compounded monthly, about £16,470. At 4% it would be about £14,908.
What is the difference between AER and gross rate?
The gross rate is the interest rate before compounding. AER shows what you would earn over a year with interest added, so it is the better figure to compare accounts.
How much interest does £200 a month earn?
Saved for 10 years at 4%, £200 a month (£24,000 in total) grows to about £29,450, so roughly £5,450 is interest.
Add this calculator to your website
Free for blogs, estate agents, builders and motoring sites: paste this code into your page (WordPress: Custom HTML block). No ads inside the widget. More options on the free calculator widgets page.
More UK calculators
Last updated October 2026.