UK Compound Interest Calculator
Free compound interest calculator in pounds sterling. Model Stocks & Shares ISA, Cash ISA, SIPP, and FTSE 100 growth. Set currency to GBP and use 6–7% as a real return rate for diversified equity ISAs.
UK investing accounts and how they compound
For UK savers, compound interest math is the same as anywhere else — the difference is the tax wrapper. Stocks & Shares ISAs, Cash ISAs, and SIPPs all shelter returns from income tax, dividend tax, and capital gains. Outside these wrappers, dividends above £500 (2025/26) and gains above £3,000 are taxable, which materially reduces effective compounding.
Stocks & Shares ISA: the workhorse
The Stocks & Shares ISA is the most powerful compounding tool for UK retail investors. Up to £20,000/year goes in (full allowance), grows tax-free, and comes out tax-free at any age. Reinvested dividends compound automatically in accumulation share classes. The math:
- £500/month at 7% real return for 10 years → £86,400
- £500/month at 7% real return for 20 years → £260,000
- £500/month at 7% real return for 30 years → £610,000
- £500/month at 7% real return for 40 years → £1.31M
SIPP (Self-Invested Personal Pension)
SIPPs add a 20% tax relief on contributions (40% or 45% for higher-rate taxpayers), effectively boosting your input. A £800 net contribution becomes £1,000 in the pension. Compound that for 30 years at 7% and the tax relief alone produces an extra ~£75,000 vs identical taxable investing. SIPPs lock funds until age 55 (rising to 57 in 2028).
Cash ISA vs Stocks & Shares ISA
Cash ISAs currently pay 4–5% AER (Annual Equivalent Rate) with daily compounding. Stocks & Shares ISAs target 6–8% but with volatility. Over any 10+ year period since 1900, UK equities have beaten cash. For shorter horizons (under 5 years), Cash ISA is the right tool; for retirement-distance savings, Stocks & Shares wins.
FTSE 100 vs global equity
The FTSE 100 has underperformed global equity indices (MSCI World, FTSE All-World) for two decades, returning about 5–6% real annually vs 7–8% for global. Most modern UK investors use a global tracker (Vanguard FTSE All-World, HSBC FTSE All-World Index) inside their ISA rather than UK-only exposure. Set 7% real return in our calculator for global, 6% for UK-heavy.
Inflation and real returns in the UK
UK CPI inflation has averaged 2–3% long-term, with spikes (2022 hit 11%). When projecting compound growth, use real returns (after inflation): roughly 6–7% for global equities, 4–5% for UK-heavy, 0–2% for cash. Our calculator shows both nominal and inflation-adjusted balances side-by-side.
Premium Bonds: the special case
Premium Bonds don't compound traditionally. NS&I uses a monthly prize draw with an average return rate (currently ~4.4% tax-free). Your £1 bond stays £1 forever — no growth, just prize chances. For risk-averse savers in the 40%+ tax bracket, Premium Bonds beat taxable savings up to the £50,000 holding limit. But they lose to a Cash ISA or Stocks & Shares ISA in expected value for most situations.
Related
- Compound interest calculator (multi-currency, flexible)
- Monthly compound interest calculator
- Daily compound interest calculator (for Cash ISA, Premium Bonds modelling)
- Rule of 72 explained — mental shortcut for doubling time
- Beginner's guide to compound interest
FAQ
How much is the UK ISA allowance?
£20,000 per adult per tax year (2025/26). Lifetime ISA cap is £4,000 of the total.
What return should I assume for a UK ISA?
6–7% real for a diversified global equity ISA, 4–5% nominal for a Cash ISA, ~4.4% tax-free for Premium Bonds.
Does compound interest work the same in pounds vs dollars?
Yes — the math is currency-independent. The differences are tax wrappers (ISA/SIPP), available rates, and inflation. Use the correct currency setting in our calculator for accurate formatting.