Compound Interest Calculator
See how your savings grow with compound interest and compare the tax impact of different UK investment wrappers. ISA growth is completely tax-free, SIPP/Pension offers upfront tax relief, and a General Investment Account faces annual tax drag.
ISA
SIPP / Pension
General Investment Account
Year-by-year breakdown
| Year | ISA | SIPP / Pension | General Investment Account | Contributions |
|---|---|---|---|---|
| 1 | £17,120 | £17,120 | £16,896 | £16,000 |
| 2 | £24,738 | £24,738 | £24,178 | £22,000 |
| 3 | £32,890 | £32,890 | £31,868 | £28,000 |
| 4 | £41,612 | £41,612 | £39,989 | £34,000 |
| 5 | £50,945 | £50,945 | £48,564 | £40,000 |
| 6 | £60,931 | £60,931 | £57,620 | £46,000 |
| 7 | £71,617 | £71,617 | £67,182 | £52,000 |
| 8 | £83,050 | £83,050 | £77,281 | £58,000 |
| 9 | £95,283 | £95,283 | £87,944 | £64,000 |
| 10 | £108,373 | £108,373 | £99,205 | £70,000 |
| 11 | £122,379 | £122,379 | £111,097 | £76,000 |
| 12 | £137,366 | £137,366 | £123,654 | £82,000 |
| 13 | £153,401 | £153,401 | £136,915 | £88,000 |
| 14 | £170,559 | £170,559 | £150,918 | £94,000 |
| 15 | £188,919 | £188,919 | £165,705 | £100,000 |
| 16 | £208,563 | £208,563 | £181,321 | £106,000 |
| 17 | £229,582 | £229,582 | £197,811 | £112,000 |
| 18 | £252,073 | £252,073 | £215,224 | £118,000 |
| 19 | £276,138 | £276,138 | £233,613 | £124,000 |
| 20 | £301,888 | £301,888 | £253,031 | £130,000 |
How UK Tax Wrappers Affect Your Returns
ISA (Individual Savings Account)
An ISA lets you save or invest up to £20,000 per tax year with completely tax-free growth and withdrawals. There's no income tax on interest, no capital gains tax on profits, and no dividend tax. This makes ISAs one of the most powerful tax-free wrappers available in the UK — particularly for long-term investors who benefit from decades of compound growth without tax drag.
SIPP / Pension
A Self-Invested Personal Pension (SIPP) or workplace pension gives you tax relief on contributions at your marginal rate. Growth inside the pension is tax-free. When you withdraw, 25% comes out tax-free (up to the Lump Sum Allowance of £268,275) and the rest is taxed as income. Pensions are most advantageous for higher-rate taxpayers who expect to pay basic rate in retirement.
General Investment Account (GIA)
A GIA has no contribution limits but no tax advantages either. Dividends above the £500 allowance, capital gains above the £3,000 annual exempt amount, and interest above the Personal Savings Allowance are all taxed. This annual tax drag compounds over time, meaning a GIA typically produces significantly lower after-tax returns than an ISA or pension over the long term.
The Power of Compound Interest
Compound interest means your returns generate their own returns. A £10,000 investment growing at 7% per year becomes £10,700 after year one. In year two, you earn 7% on £10,700 — not just the original £10,000. Over 20 years, this snowball effect turns £10,000 into nearly £39,000 without any additional contributions.
Adding regular monthly contributions amplifies the effect dramatically. Contributing £500 per month at 7% for 20 years produces a portfolio worth over £270,000 — of which only £130,000 is money you put in. The rest is compound growth.
Tax is the enemy of compounding. Every pound paid in tax is a pound that can no longer compound. This is why tax-efficient wrappers like ISAs and pensions can make such a large difference over long time horizons. The calculator above shows exactly how much each wrapper costs — or saves — in your specific situation.
Frequently asked questions
What is the ISA allowance for 2025/26?
The annual ISA allowance for 2025/26 is £20,000. This is the total across all ISA types — Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA. Growth and withdrawals are completely tax-free.
How does pension tax relief work?
Pension contributions receive tax relief at your marginal rate. Basic-rate taxpayers get 20% relief automatically (£100 costs you £80). Higher-rate and additional-rate taxpayers claim extra relief through Self Assessment. Growth is tax-free, but withdrawals (except the 25% lump sum) are taxed as income.
What is the 25% pension tax-free lump sum?
From age 55 (rising to 57 in 2028), you can take up to 25% of your pension as a tax-free lump sum, capped at the Lump Sum Allowance of £268,275. The remaining 75% is taxed as income when withdrawn.
What taxes apply to a General Investment Account?
A GIA has no tax shelter. Dividends above £500 are taxed at 8.75%–39.35%. Capital gains above the £3,000 annual exempt amount are taxed at 18%–24%. Interest above the Personal Savings Allowance is taxed at your marginal rate.
Is an ISA or pension better?
It depends on your tax rate now versus in retirement. Higher-rate taxpayers who expect to be basic-rate in retirement usually benefit more from pensions. Basic-rate taxpayers often do better with ISAs since there's no withdrawal tax. Ideally, use both — pension for the tax relief, ISA for flexible tax-free access.
How does compound interest work?
Compound interest means you earn returns on your returns, not just your original investment. Over time this creates exponential growth — £10,000 at 7% per year becomes £38,697 after 20 years without any additional contributions.
What is tax drag?
Tax drag is the reduction in returns from paying tax on growth each year. In a GIA, annual taxes reduce the amount that compounds forward. Over 20+ years, this can cost tens of thousands compared to a tax-free wrapper like an ISA.
Can I hold the same investments in an ISA and a GIA?
Yes. A Stocks and Shares ISA and a GIA can hold identical funds, shares, and bonds. The only difference is the tax treatment — which is why it makes sense to use your ISA allowance first.