How compound interest works
Compounding means your returns start earning returns of their own. In the early years, most of your pot is money you paid in. Give it long enough and growth starts to do the heavy lifting, which is why the lime line in the chart curves upwards instead of rising in a straight line.
Three things drive the result: how much you put in, how long you leave it, and how much you lose to fees. Time is the one you can't buy back, so the best time to start is usually now, even with a small amount.
Why fees matter more than you think
Move the fee slider from 0.3% to 1% on a 30-year timeline and watch what happens. Fees compound too, just in the wrong direction. Low-cost index funds and cheap platforms can leave you thousands better off.
Questions people ask
What is compound interest?
Compound interest is growth on your growth. Each year your returns are added to your pot, and the next year you earn returns on that bigger total. Over long periods, growth can end up larger than the money you paid in.
What return should I use for stocks and shares?
There is no guaranteed figure. Many UK calculators use somewhere between 4% and 7% a year before inflation for a diversified global fund. Try a few rates to see a range of outcomes, and remember returns vary from year to year.
Does this include fees?
Yes. The yearly fee slider covers platform and fund charges and is taken off the return. A 1% fee can make a surprisingly big difference over 20 or 30 years.
Is this tax-free?
The calculator ignores tax. Investing inside a stocks and shares ISA keeps growth free from UK income tax and capital gains tax, up to the annual ISA allowance.