Savings Interest: Simple vs Compound (UK)
Understand the difference between simple and compound interest, and how savings growth can change over time with different compounding.
Rates and rules can change. This guide is for general understanding—always check official GOV.UK guidance for the latest.
Simple interest vs compound interest
Simple interest is calculated only on your starting balance.
Compound interest adds interest on both your balance and previous interest—often increasing growth over time.
- Simple = predictable, linear growth
- Compound = growth accelerates with time
Compounding frequency matters
Daily, monthly, or yearly compounding can change outcomes.
The difference is usually small over short periods but grows over longer terms.
- Try different compounding options to compare
Practical saving scenarios
Use the calculator to model regular deposits, lump sums, and time horizons.
For real accounts, check the advertised AER and conditions.
- Model deposits to build realistic expectations
FAQ
What is AER?
AER is the Annual Equivalent Rate—an annualised rate that helps compare savings products.
Does compound interest always win?
Over time, compounding usually increases returns, but actual outcomes depend on rates, fees, and account rules.
Can I use this for investments?
It’s a useful estimate for growth, but investments have risk and variable returns.