Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. The key things is that it will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.

The rate at which compound interest accrues depends on the frequency of compounding, such that the higher the number of compounding periods, the greater the compound interest. The amount of compound interest accrued on £100 compounded at 10% annually will be lower than that on £100 compounded at 5% semi-annually over the same time period. Since the interest-on-interest effect can generate increasingly positive returns based on the initial principal amount, it has sometimes been referred to as the "miracle of compound interest."

Our Compound Interest Calculator will make calculating your expected return as easy as clicking a button and selecting your interest rate.