ISA Compound Interest Calculator — Tax-Free Growth
A stocks & shares ISA is one of the most powerful tools available to UK investors — all growth is completely tax-free, with no capital gains tax or dividend tax to worry about. The annual ISA allowance is £20,000 (£1,666/month). If you invest the maximum at 6.5% returns over 20 years, your ISA could grow to approximately £790,000 — with £400,000 contributed and £390,000 in tax-free compound growth. Even partial ISA contributions compound significantly over time. Use the calculator to model your ISA strategy.
Illustrative estimate only — not a guarantee
~£817,041 after 20 years
£399,840 contributed + £417,201 interest
Based on a hypothetical constant return. Actual returns will vary.
By the CompoundWise Team · Updated April 2026
UK-based financial education · Not financial advice
Invest £1,666/month for 20 years at 6.5%
£417,201
earned in interest alone
That's more than you put in — your money earns money
Total value
£817,041
You put in
£399,840
To reach £817,041, most UK investors use a Stocks & Shares ISA
Most UK beginners start here
Open a free Stocks & Shares ISA
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Compare other platforms ↓Keeping this in a savings account? You'd have ~£206,187 less
Compared to investing at 6.5% vs a 4% cash savings account
Growth Over Time
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Your Personalised Insights
- Year 20: your interest overtakes your contributions. From here, compounding does the heavy lifting.
- Your money earns ~£57/day in interest — that's £417,201 earned while you sleep.
- Saving just £50 more per month would add £24,521 to your final balance — that's £12,000 invested for £24,521 extra.
- 5 more years would add £430,521 — nearly 53% more, showing how powerful time is.
- Starting 5 years earlier would add £311,335 to your final balance. Every year you wait costs real money.Start investing now →
- Consistency beats timing — investing £1,666/month for 20 years matters more than picking the perfect moment to start.
- At your current plan, you reach £500k in 15 years. That's a real milestone — and it compounds from there.Start building towards it →
Ready to start? Open a free ISA
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Year-by-Year ISA Growth: Maximising Your £20,000 Annual Allowance
Investing the full £1,666 per month (approximately £20,000 per year) at 6.5% returns, your ISA balance reaches roughly £21,300 after year one. By year five, you hold approximately £116,000, with about £16,000 in compound growth. Year 10 brings roughly £282,000, and annual tax-free interest income surpasses £17,000. At year 15, your ISA hits approximately £511,000 — over half a million in tax-free wealth. By year 20, the balance reaches approximately £790,000. The tax savings over this period are enormous: outside an ISA, capital gains tax and dividend tax could have reduced your returns by £50,000 to £100,000 or more, depending on your tax band. Within the ISA, every penny of that £390,000 in compound growth is entirely yours.
Understanding ISA Rules and Allowances for UK Investors
The current annual ISA allowance is £20,000 per person, which can be split across cash ISAs, stocks and shares ISAs, innovative finance ISAs, and Lifetime ISAs (subject to the LISA sub-limit of £4,000). The allowance resets every 6 April and cannot be carried forward — use it or lose it. Within a stocks and shares ISA, you pay no capital gains tax on profits when you sell, no tax on dividends, and no income tax on bond interest. You do not need to declare ISA holdings on your self-assessment tax return. Importantly, ISA investments are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per provider in the event of the provider going bankrupt. For larger ISA portfolios, consider spreading across two or three FCA-regulated providers for additional protection.
How to Maximise Your ISA: A Step-by-Step Guide
Step one: determine how much of the £20,000 annual allowance you can realistically fill. Even partial contributions grow tax-free. Step two: choose a platform — at £20,000 per year, your portfolio will grow quickly, so flat-fee platforms (interactive investor, AJ Bell) become cost-effective within a few years. Step three: select your investments — a global equity index fund as a core holding, optionally supplemented with a UK equity fund or bond fund depending on your risk appetite and timeline. Step four: set up a monthly direct debit for £1,666 (or whatever portion of the allowance you can fill) timed for shortly after payday. Step five: enable automatic dividend reinvestment to ensure compound interest works on every penny. Review your ISA annually, but avoid frequent trading — each buy/sell may incur dealing charges that erode your tax-free returns.
ISA Versus General Investment Account: The Tax Savings Explained
Outside an ISA, you face two main taxes on investments. Capital gains tax applies when you sell investments at a profit: the annual exempt amount is currently £3,000, and gains above that are taxed at 18% (basic rate) or 24% (higher rate). Dividend tax applies to dividends received: the annual allowance is £500, with excess taxed at 8.75% (basic rate) or 33.75% (higher rate). Over 20 years with a portfolio growing to £790,000, the compound effect of these taxes is substantial. A rough estimate: investing the same amounts in a GIA instead of an ISA could cost you £60,000 to £120,000 in taxes over the period, depending on your tax band, turnover, and dividend yield. The ISA eliminates all of this — making it the single most important tax planning tool for UK retail investors.
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Common questions
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