Savings Interest Calculator

How to use this calculator

1. Use the AER, not the gross rateThe Annual Equivalent Rate accounts for how often interest is paid and is the figure designed for comparison. Two accounts with the same gross rate can have different AERs.
2. Leave charges at zero for a savings accountThe charge field exists for investments. A straightforward savings account has no annual fee, so leaving it at zero is correct.
3. Leave tax at zero for an ISAInterest in a cash ISA is tax free. Outside one, enter your rate on interest above your personal savings allowance.
4. Treat long projections as comparisonsEasy-access rates move at the provider's discretion. A ten-year projection at today's rate compares options rather than predicting a balance.

Why regular saving beats a lump sum for the same total

A lump sum invested at the start earns interest for the whole term. A monthly deposit made in the final month earns interest for one month. That asymmetry is why the timing of contributions matters as much as their size.

Over ten years at 4.5%, £5,000 invested at the outset roughly grows by 56%. The same £5,000 paid in as £41.67 a month over the ten years grows by far less, because on average each pound has been invested for only half the term.

That is not an argument against regular saving — it is an argument for starting it earlier. The habit matters more than the arithmetic, and most people cannot produce a lump sum in the first place.

It does argue for front-loading where you have the choice. Paying an annual ISA allowance in April rather than the following March gives it eleven extra months of growth, every year, at no cost.

The second thing worth understanding is how interest frequency affects the outcome. Interest paid monthly and left in the account compounds twelve times a year; interest paid annually compounds once. At the same gross rate, monthly compounding produces slightly more — which is precisely what the AER is designed to capture, and why comparing gross rates between accounts with different payment frequencies is misleading.

For cash savings specifically, the real question is whether the rate beats inflation. A 4.5% account against 3% inflation preserves purchasing power with a little to spare. The same account against 6% inflation loses value in real terms every year despite the balance rising, which is the situation cash savers have periodically faced.

That is the honest limitation of cash: it is the right home for money you may need within a few years, and a poor one for money you will not touch for decades.

Worked example: £5,000 plus £200 a month at 4.5%

Over ten years, with interest compounding monthly and no charges or tax.

The monthly rate is 4.5% ÷ 12 = 0.375%, and the term is 120 months.

The opening £5,000 grows to roughly £7,830 — a gain of about 56%.

The monthly deposits total £200 × 120 = £24,000 paid in, and they grow to roughly £30,300.

Combined, the projected balance is about £38,130.

Total paid in: £29,000. Interest earned: roughly £9,130, which is 24% of the final balance.

Now the tax question, and this is where UK savers need to pay attention. Held in a cash ISA, that £9,130 of interest is entirely tax free.

Held outside one, the personal savings allowance covers £1,000 of interest a year for a basic-rate taxpayer, £500 for a higher-rate taxpayer, and nothing at all for an additional-rate taxpayer. Interest above the allowance is taxed at your marginal rate.

In the later years of this plan, annual interest exceeds £1,300 — so a basic-rate taxpayer would start paying tax on the excess, and a higher-rate taxpayer would be paying on considerably more.

The practical consequence: with a balance approaching £25,000 at 4.5%, a basic-rate taxpayer is close to using the whole allowance from savings interest alone. Beyond that, an ISA is worth using even at a slightly lower headline rate, because the comparison is against a post-tax return.

Extend the term to twenty years and the picture changes shape. Contributions rise to £53,000, but the projected balance rises to about £87,600 — interest now accounts for 39% of the total rather than 24%.

Tax on savings interest

The last column is the useful one. At 4.5%, a higher-rate taxpayer exhausts their allowance with about £11,000 in savings — a modest emergency fund. Beyond that, every pound of interest is taxed at 40%, so a cash ISA paying 4% net beats a taxable account paying 4.5% gross. That crossover arrives far sooner than most people expect, and it moves with the rate.

Choosing an account, and where cash belongs

Easy-access accounts allow withdrawals at any time and pay lower rates. They are the right home for an emergency fund, where availability matters more than return.

Notice accounts require a set period of notice, commonly 30 to 120 days, and pay a little more. Fixed-rate bonds lock the money away for a term and pay most, but early access is usually impossible or heavily penalised.

Regular saver accounts pay headline rates well above the market on a limited monthly deposit. The rate looks spectacular and applies only to a small and growing balance, so the actual interest earned is modest — the effective return on the total is roughly half the headline, because on average the money has been in for half the year.

The protection point matters more than the rate. Deposits are protected by the Financial Services Compensation Scheme up to £85,000 per person per banking licence. The licence, not the brand, is what counts — several well-known brands share a licence, and money spread across them is not spread for protection purposes. Anyone holding more than the limit should check which licences their accounts sit under.

On where cash belongs: it is the right vehicle for an emergency fund of three to six months' expenses, and for anything you expect to need within about five years. For longer horizons, cash has historically lost purchasing power against inflation while investments have generally outpaced it — though with volatility that makes them unsuitable for short-term money.

Rates on easy-access accounts move at the provider's discretion, and providers rely on inertia. An account opened at a competitive rate three years ago is frequently paying well below market now. Checking annually is one of the highest-return uses of half an hour available.

Finally, the ISA allowance is use-it-or-lose-it each tax year. Unused allowance does not carry forward, which is the strongest argument for contributing earlier in the year rather than later.

Assumptions and limitations

• Assumes a constant rate, whereas easy-access rates move at the provider's discretion
• Monthly compounding with deposits at the end of each month
• Does not apply the personal savings allowance automatically — enter a tax rate if relevant
• Does not model regular saver accounts, whose headline rates apply to a growing balance
• Nominal figures — enter a real rate if you want the answer in today's money
• Does not model ISA allowance limits or transfers
• Not financial advice, and does not check FSCS protection across banking licences

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