About the Compound Interest Calculator
Compound interest is the interest on your interest. It is one of the most powerful forces in finance, allowing your money to grow exponentially over time. The earlier you start investing, the more time compounding has to work in your favour.
How compounding frequency affects growth
The more frequently interest is compounded, the faster your investment grows. Daily compounding yields slightly more than monthly, which yields more than annual compounding. Over long periods, these differences become significant.
Investment principles
- Start early: Time is your greatest asset when compounding.
- Be consistent: Regular monthly additions boost the compounding effect.
- Reinvest returns: Keep dividends and interest working for you.
- Think long-term: Markets fluctuate, but long-term investing historically rewards patience.
Frequently asked questions
What is the Rule of 72?
Divide 72 by your annual return rate to estimate how many years it takes to double your money. For example, at 7%, your money doubles roughly every 10.3 years (72 7).
What is a realistic long-term return?
The FTSE 100 has historically delivered average annual returns of around 6-8%. A global diversified portfolio might return 5-7% after fees. Past performance does not guarantee future results.
Should I use a Cash ISA or S&S ISA for compounding?
A Cash ISA is better for short-term savings with guaranteed returns. A Stocks & Shares ISA offers higher potential returns over the long term but with more risk and volatility.