Compounding means growth can earn further growth. It is a mechanism, not a promise about future returns. Time, contributions and the assumed rate all matter.
Separate the two sources of growth
Start with £1,000 and assume a constant 5% annual return with no withdrawals. After one year the balance is £1,050. After two years it is £1,102.50: the second year's £52.50 includes growth on the first year's growth.
Adding £100 at the end of every month brings another £1,200 of your own money into the account each year. Do not describe those contributions as investment gains. Our calculator separates money paid in from modelled growth.
Investment returns can vary and losses are possible. Fees, taxes, withdrawals and changing contributions affect the result. A constant-rate illustration is a way to understand the maths, not a forecast.
Try explaining it
At a zero return, what would £1,000 plus £100 a month become after two years?
Reveal the worked answer
£3,400: £1,000 initially plus 24 contributions of £100. All of the increase comes from contributions.
Separate effort from returns
The ending balance combines your deposits and modelled growth. A large balance does not necessarily mean a high return: increasing contributions can matter more than changing the return assumption. Constant growth is a teaching device, not a forecast.
Check your understanding
Start with £1,000, make no contributions and assume 5% growth for two years. What is the ending balance?
See the worked answer
£1,102.50: £1,000 × 1.05 × 1.05. The second year earns £52.50 because the first year’s growth also participates.
Your next step
Run the savings tool with 0% growth first, then 4%. Change only the monthly contribution next. Describe which change you control and which you merely assume.
Investor.gov: Compound Interest. Reviewed 14 October 2026. Worked examples and exercises are original illustrations; no current market prices are used.