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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.

Investment Details

What you pay in from your own pocket, the same for every wrapper. The SIPP / Pension is topped up by tax relief: your provider adds 20% at source and, above the basic rate, you claim the rest back on Self Assessment, so the pension receives your payment divided by (1 minus your relief rate). Assumes the claim arrives in the same year and ignores the annual allowance.

The part of the return paid out as dividends or interest, which a General Investment Account is taxed on every year. Leave at 0 for an accumulating, growth-only holding — its capital gain is then taxed once on disposal, after the annual exempt amount.

Compare tax wrappers
Best outcome
SIPP / Pension
£320,756
after 20 years at 7%
+£49,268 vs General Investment Account
Growth Over Time

ISA

Tax-free growth and withdrawals — no income tax, no capital gains tax
After-tax value
£301,888
Contributions
£130,000
Growth
£171,888
Tax paid
£0
-£18,868 vs SIPP / Pension

SIPP / Pension

Tax relief on contributions (20% added at source, more claimed back above the basic rate), tax-free growth, 25% tax-free lump sum (capped at the lump sum allowance) on withdrawal
After-tax value
£320,756
Paid into pot (incl. relief)
£162,500
Growth
£214,860
Tax paid
£0

General Investment Account

No ISA or pension shelter — dividends and interest taxed each year, capital gains taxed on disposal after the annual exempt amount
After-tax value
£271,488
Contributions
£130,000
Growth
£171,888
Tax paid
£0
-£49,268 vs SIPP / Pension
Year-by-year breakdown
YearISASIPP / PensionGeneral Investment AccountContributions
1£17,120£21,400£17,120£16,000
2£24,738£30,923£24,738£22,000
3£32,890£41,113£32,890£28,000
4£41,612£52,015£41,612£34,000
5£50,945£63,682£50,945£40,000
6£60,931£76,164£60,931£46,000
7£71,617£89,521£71,617£52,000
8£83,050£103,812£83,050£58,000
9£95,283£119,104£95,283£64,000
10£108,373£135,466£108,373£70,000
11£122,379£152,974£122,379£76,000
12£137,366£171,707£137,366£82,000
13£153,401£191,752£153,401£88,000
14£170,559£213,199£170,559£94,000
15£188,919£236,148£188,919£100,000
16£208,563£260,704£208,563£106,000
17£229,582£286,978£229,582£112,000
18£252,073£315,091£252,073£118,000
19£276,138£345,173£276,138£124,000
20£301,888£377,360£301,888£130,000
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Compare a flat fee with a percentage fee

Which charging structure leaves more invested over your horizon? All figures in this panel are before tax and separate from the tax wrapper results above. Enter the amount you actually invest, not a pension contribution before tax relief.

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 2026/27?
The annual ISA allowance for the 2026/27 tax year is £20,000. This is the total you can save or invest across all types of ISA (Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA) in one tax year. Growth and withdrawals inside an ISA are completely tax-free.
How does pension tax relief work in the UK?
When you contribute to a SIPP or workplace pension, you receive tax relief at your marginal rate. Basic-rate taxpayers get 20% relief automatically (a £100 contribution costs you £80). Higher-rate (40%) and additional-rate (45%) taxpayers can claim extra relief through Self Assessment. Growth inside the pension is tax-free, but withdrawals are taxed as income — except for the 25% tax-free lump sum.
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 pot as a tax-free lump sum, subject to the Lump Sum Allowance of £268,275. The remaining 75% is taxed as income when you withdraw it. This makes pensions particularly attractive for higher-rate taxpayers who expect to be basic-rate in retirement.
What taxes apply to a General Investment Account (GIA)?
A GIA has no tax advantages. Dividends above the £500 Dividend Allowance are taxed at 10.75% (basic), 35.75% (higher), or 39.35% (additional) for 2026/27 — up 2 percentage points on the basic and higher rates from 2025/26's 8.75% / 33.75% (the additional rate is unchanged). Capital gains above the £3,000 Annual Exempt Amount are taxed at 18% (basic) or 24% (higher/additional). Interest income above the Personal Savings Allowance (£1,000 basic, £500 higher) is taxed at your marginal rate.
Is an ISA or pension better for long-term investing?
It depends on your tax rate now versus in retirement. A pension gives upfront tax relief and tax-free growth, but withdrawals are taxed as income (except 25% tax-free). An ISA uses after-tax money but all growth and withdrawals are tax-free. For higher-rate taxpayers who expect to be basic-rate in retirement, pensions usually win. For basic-rate taxpayers, ISAs often come out ahead because 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 on your original investment. For example, £10,000 growing at 7% per year becomes £10,700 after year one. In year two, you earn 7% on £10,700 (not £10,000), giving you £11,449. Over 20 years this snowball effect can more than double your money — £10,000 becomes £38,697 at 7% compound annual growth.
What is tax drag and why does it matter?
Tax drag is the reduction in your investment returns caused by paying tax on growth each year. In a GIA, annual taxes on dividends and gains reduce the amount that compounds. Over 20-30 years, this can cost tens of thousands of pounds compared to a tax-free wrapper like an ISA. The higher your return and the longer your time horizon, the bigger the drag.
Can I hold the same investments in an ISA and a GIA?
Yes. A Stocks and Shares ISA and a GIA can hold exactly the same funds, shares, and bonds. The only difference is the tax treatment. This is why it almost always makes sense to use your ISA allowance first before investing in a GIA — same investments, but tax-free growth.

Sources

Related Calculators

ISA Allowance Reference

Overall, Cash, Stocks & Shares, LISA and Junior ISA limits — plus the cancelled April 2027 cash ISA cut.

Tax on Savings Interest

How much savings interest is tax-free via the Personal Allowance, starting rate for savings and Personal Savings Allowance.

Lifetime ISA Calculator

Project your LISA balance with the 25% government bonus.

Learn More

ISA Allowance and Tax-Free Savings: A Complete Guide

Everything you need to know about ISAs in the UK, including the £20,000 annual allowance, types of ISA, and how they shelter your savings from tax.

ISA vs Pension: Which Is Better for Retirement Saving?

ISAs and pensions are both tax-efficient — but they work very differently. This guide compares access age, tax treatment, flexibility, inheritance rules, and when each makes sense.
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