Yearly Savings Interest Calculator UK

Compound Interest Formula:

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

Principal Amount (P):

GBP

Annual Interest Rate (R):

decimal

Compounding Frequency (n):

Time Period (T):

years

Maturity Amount (A):

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1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of an investment or savings account where interest is added to the principal at regular intervals, allowing the interest to earn additional interest over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

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

Explanation: The formula accounts for how frequently interest is compounded, which significantly impacts the final amount earned.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is essential for financial planning, savings growth estimation, and comparing different savings or investment products in the UK market.

4. Using the Calculator

Tips: Enter principal amount in GBP, annual interest rate as a decimal (e.g., 0.05 for 5%), select compounding frequency, and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., daily vs. annually) results in higher returns due to interest being calculated and added more often.

Q3: Are UK savings accounts taxed on interest?
A: Most UK residents have a Personal Savings Allowance. Basic rate taxpayers can earn £1,000 interest tax-free, higher rate taxpayers £500.

Q4: What is AER in UK savings accounts?
A: Annual Equivalent Rate shows what the interest rate would be if interest was paid and compounded once each year.

Q5: Can I use this for regular savings accounts?
A: This calculator is designed for lump-sum investments. Regular savings accounts with monthly deposits require a different calculation.