Compound interest explained

Regular long-term saving brings a bonus called compound interest. In other words, your interest earns its own interest.

Just imagine you saved £100 per month for 15 years. Without interest, this would give you an £18,000 pot of cash. But with interest compounded monthly at the rate of 6%, in 15 years, that would be worth £29,082.

Time passed

0% interest (£)

4% interest (£)

6% interest (£)

8% interest (£)

5 years

6000

6,623

6,977

7,355

10 years

12,000

14,694

16,388

18,335

15 years

18,000

24,529

29,082

34,727

20 years

24,000

36,513

46,204

59,196

25 years

30,000

51,117

69,299

95,723

30 years

36,000

68,912

100,452

150,252

 

Total interest after 30 yrs

0

31,912

64,452

114,252

Approximate value of regular savings of £100 per month over time with compound interest.

AER explained

AER stands for Annual Equivalent Rate and is used by savers to compare the interest you can expect to earn on different savings account funds. The percentage of interest is rolled up and paid at the end of each year. AERs must be published on all advertisements. Note, the quoted rates and AER can vary.

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