How savings interest grows
When interest is added to your savings and then itself earns interest, your money grows by compounding. The longer you save and the more regularly you add to your balance, the more noticeable the effect becomes. This calculator projects your balance year by year based on a starting amount, a monthly deposit and an interest rate, and separates how much of the final figure came from your deposits and how much from interest.
AER, gross and how to compare accounts
UK savings accounts show an AER (Annual Equivalent Rate), which illustrates what the interest would be if it were paid and compounded once a year. Because it standardises different compounding frequencies, AER is the best figure for comparing accounts. You may also see a gross rate, which is the contractual rate before tax. This calculator treats the rate you enter as an AER by default; choose “compounded annually” if your account pays interest once a year at the stated rate.
Types of savings accounts
- Easy access – withdraw whenever you like. Rates can change at any time.
- Notice accounts – you must give notice (for example 30, 60 or 95 days) before withdrawing.
- Fixed-rate bonds – lock your money away for a set term in exchange for a fixed rate.
- Regular savers – often pay higher rates on limited monthly deposits for a year.
- Cash ISAs – interest is tax-free. The overall ISA allowance is £20,000 per tax year across all your ISAs (check GOV.UK for the latest rules).
- Premium Bonds – instead of interest, you are entered into monthly prize draws; returns are not guaranteed.
Is savings interest taxed?
Interest outside an ISA counts as income, but most people pay no tax on it thanks to the Personal Savings Allowance: up to £1,000 of interest a year for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate taxpayers. Some people with low earnings also benefit from the starting rate for savings, which can make up to £5,000 of interest tax-free. See GOV.UK: tax on savings interest. As rates and balances rise, more savers exceed their allowance, which is one reason ISAs remain popular.
Is my money protected?
Deposits with UK-authorised banks, building societies and credit unions are protected by the Financial Services Compensation Scheme (FSCS) up to a limit per person, per authorised institution. Some brands share a single banking licence, so protection applies to the group, not each brand. Check the current limit and which brands share a licence on the FSCS website before spreading large sums.
Worked example
If you start with £1,000 and add £200 a month at 4% AER, after five years you would have deposited £13,000 and the balance would be roughly £14,450 – about £1,450 of interest, assuming the rate stays the same. In reality, variable rates move with market conditions, so treat the projection as a guide. You can test different rates to see how much difference a better account would make.
Making your savings work harder
- Build an emergency fund first in an easy-access account – many people aim for three to six months of essential spending.
- Check your current rate. Older accounts are sometimes left on low rates; switching can be quick.
- Match the account to your timeline. Money you won't need for a year or more might earn more in a fixed-rate bond or notice account.
- Think about inflation. If your savings rate is below inflation, the spending power of your money falls even as the balance rises. For long-term goals, investing may be worth considering, accepting that values can fall as well as rise.
Our guide to comparing savings accounts walks through a practical approach without relying on rates that go out of date.
Projections assume a constant rate and no withdrawals or tax. They are illustrative only.