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.