Cash ISA Compound Interest Calculator

Compound Interest Formula:

\[ A = P \times (1 + \frac{R}{n})^{(n \times T)} \]

Principal Amount (P):

GBP

Annual Interest Rate (R):

Compounding Frequency (n):

Time Period (T):

years

Final Amount (A):

Total Interest Earned:

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1. What is the Cash ISA Compound Interest Calculator?

The Cash ISA Compound Interest Calculator estimates the growth of your Cash Individual Savings Account (ISA) using the compound interest formula. It helps you project how your savings will grow over time with regular compounding.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + \frac{R}{n})^{(n \times T)} \]

Where:

\( A \) — Final amount including interest
\( P \) — Principal investment amount (GBP)
\( R \) — Annual interest rate (decimal)
\( n \) — Compounding frequency per year
\( T \) — Time period in years

Explanation: The formula calculates how your initial investment grows when interest is earned on both the principal and previously earned interest.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is crucial for long-term financial planning. It demonstrates how regular savings can grow significantly over time, especially in tax-efficient accounts like Cash ISAs.

4. Using the Calculator

Tips: Enter your initial deposit in GBP, annual interest rate as a percentage, select how often interest is compounded, and the time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a Cash ISA?
A: A Cash ISA is a tax-free savings account available in the UK where you don't pay tax on the interest you earn.

Q2: How often is interest typically compounded in Cash ISAs?
A: Most Cash ISAs compound interest annually, but some may offer monthly or quarterly compounding. Always check with your provider.

Q3: Are there contribution limits for Cash ISAs?
A: Yes, there is an annual ISA allowance set by the UK government that limits how much you can contribute each tax year.

Q4: Can I withdraw money from my Cash ISA?
A: This depends on the type of Cash ISA. Some allow instant access, while others have withdrawal restrictions or penalties.

Q5: How does compound interest differ from simple interest?
A: Compound interest earns interest on both the principal and accumulated interest, while simple interest only earns on the principal amount.