How Does Compound Interest Work?

Compound interest means you earn interest on your interest — not just your original deposit. Over time this creates exponential growth, often called the "eighth wonder of the world." A £5,000 investment at 7% annually, with £200 monthly contributions, grows to over £38,000 in 10 years — of which nearly £11,000 is interest earned on interest.

The key variables are your starting amount, your contribution frequency, your interest rate, and crucially — time. Doubling your time period has a far greater impact than doubling your rate. This is why starting early matters so much: even small monthly contributions compound dramatically over 20–30 years.

To see how much you can afford to save each month, use our Take-Home Pay Calculator. To set a specific target, see our Savings Goal Calculator.