What is compound interest?

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Over time, this creates exponential growth — often called 'the eighth wonder of the world'.

What is a good ROI for investments?

The S&P 500 has historically averaged around 10% annually before inflation. A 7% real return (adjusted for inflation) is commonly used as a planning benchmark for diversified equity portfolios.

📈 Compound Growth Tool

Free Investment ROI Calculator

Project how your investments grow with compound interest. Calculate returns on lump sum investments and regular contributions with year-by-year breakdowns.

Calculate Returns How It Works

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Investment ROI & Compound Interest Calculator

Lump sum · Regular contributions · Year-by-year growth

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Monthly Contribution

Annual Return Rate (before tax)

Investment Period

yrs

Inflation Rate (optional)

Compounding Frequency

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Capital Gains Tax Rate

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💡 Past investment returns are not a guarantee of future results. This calculator is for educational purposes and does not constitute financial advice. Always consult a qualified financial adviser.

How Compound Interest Works

Compound interest is often called the eighth wonder of the world. Unlike simple interest — which only earns returns on your original principal — compound interest earns returns on your returns. This creates exponential, snowball-like growth over time.

The Compound Interest Formula

The formula is: A = P(1 + r/n)^(nt), where P = principal, r = annual rate, n = compounding periods per year, and t = years. Our calculator handles this automatically for both lump sum and regular contribution scenarios.

Why Regular Contributions Matter

Monthly contributions supercharge compound growth. Even small, consistent investments of £100–£200 per month, maintained over 20–30 years, can grow into substantial wealth thanks to the compounding effect. Starting early is more powerful than investing larger amounts later.

The Rule of 72

A quick mental shortcut: divide 72 by your annual return rate to estimate how many years it takes to double your investment. At 8% annual returns, money doubles approximately every 9 years (72 ÷ 8 = 9).

ISAs and Tax-Free Investing

UK investors can shelter up to £20,000 per year in a Stocks and Shares ISA (2024/25), meaning all growth and income is completely tax-free. Select "ISA / Tax-Free (0%)" in our investment calculator to project tax-free growth.

📊 S&P 500 Historical Returns

The S&P 500 has averaged around 10% annual returns before inflation since 1957. Adjusted for inflation, real returns average approximately 7%. Our calculator's default 8% is a commonly used planning benchmark.

🌍 Diversification Matters

Spreading investments across asset classes (equities, bonds, property, cash) and geographies reduces volatility without necessarily reducing long-term returns. Low-cost index funds provide instant diversification.

💸 Pound-Cost Averaging

Regular monthly contributions automatically buy more shares when prices are low and fewer when prices are high — this is called pound-cost averaging. It removes the pressure of trying to "time the market".

⚠️ Inflation Erosion

At 2.5% inflation, £100 today is worth only £78 in 10 years. Our calculator shows both nominal (unadjusted) and real (inflation-adjusted) values so you can plan for genuine purchasing power growth.

Common Questions

Investment ROI FAQ

What is a realistic investment return rate?+

Global equities have historically returned around 7–10% per year before inflation over long periods. After inflation (typically 2–3%), real returns are often 5–7%. Cash savings and bonds typically return less. A 5–8% long-term assumption is conservative but reasonable for a diversified equity portfolio. This is not a guarantee of future results.

How is ROI calculated?+

Return on Investment (ROI) is calculated as: (Final Value − Total Invested) ÷ Total Invested × 100%. For example, if you invest £10,000 and it grows to £30,000, your ROI is 200%. Our calculator shows both absolute return and percentage ROI, as well as annualised return (CAGR).

What is the UK capital gains tax on investments?+

For 2024/25, basic rate taxpayers pay 10% CGT on investment gains (18% on residential property). Higher rate taxpayers pay 20% (28% on residential property). The annual CGT exemption was reduced to £3,000 for 2024/25. Gains within ISAs are completely tax-free.

What is the difference between nominal and real returns?+

Nominal returns are the headline return percentage without adjusting for inflation. Real returns subtract the inflation rate, showing your actual gain in purchasing power. If your investment returns 8% but inflation is 3%, your real return is approximately 5%. This calculator shows both when you enter an inflation rate.

How much should I invest each month?+

A common guideline is to invest at least 10–15% of your income. However, even £50 per month invested consistently from age 25 can grow to over £150,000 by retirement at 8% returns. The most important factor is starting early and being consistent — use our calculator to model different scenarios.

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