Savings interest calculator

Savings interest is what a bank or building society pays for holding your money, quoted as a yearly interest rate before tax. The calculator adds the opening deposit and each monthly payment at the start of its month. Each month earns a twelfth of the yearly rate on the balance held, and that interest joins the balance when the account credits it. Once credited, it earns interest too, which is compound interest at work. The £20,000 example with £200 a month at 4.5% over 5 years pays in £32,000.00 and earns £6,515.40 of gross interest. For someone with £35,000 of other income the income tax on that interest comes to £338.21, leaving £38,177.19. The tax is worked out separately for each year, because the allowances renew every April. Every figure the tool must reproduce is listed under checked cases.

The tax column shows why the first year costs nothing and later years do. Interest of £978.10 in year 1 fits inside the allowance, while £1,133.30 in year 2 goes over it. A regular saver account or an easy access account works the same way; only the rate and the rules on withdrawals differ.

The AER, or annual equivalent rate, shows what a rate earns over a year once each credit is left in the account. An account quoting 4.5% gross and paying monthly has an AER of 4.59%. The same rate paid once a year has an AER equal to the rate itself. Banks publish both figures, so enter the gross rate and pick how often interest is paid.

A fixed rate bond that pays everything on maturity grows slowest, since nothing compounds on the way. It can also cost more tax, as the section on awkward cases explains. Savings rates on new accounts tend to move with the Bank of England base rate, while a fixed rate stays put for the whole term.

Interest is paid gross, but it still counts as taxable income. HMRC treats it as a slice on top of your non-savings income, such as wages or a pension. Three allowances can cover it before any tax is charged.

1. The Personal Allowance of £12,570, if your other income has not used it all.
2. The starting rate for savings: up to £5,000 taxed at 0%. It shrinks by £1 for every £1 of other income above the Personal Allowance, so it is gone once that income reaches £17,570.
3. The Personal Savings Allowance: £1,000 for a basic rate taxpayer, £500 for a higher rate taxpayer and nothing for an additional rate taxpayer (Income Tax Act 2007, section 12B).

Your tax band is judged on total income, interest included. Interest can therefore tip someone from the basic into the higher band and halve the allowance. With other income of £60,000 the example above pays £1,676.91 over the term instead of £338.21. With no other income at all, the three layers cover the whole £6,515.40 and the tax is £0.00. To see what your other income leaves after tax, the salary calculator works it out from a gross salary.

For 2026-27, interest above the allowances is taxed at 20%, 40% or 45%. The Finance Act 2026 raises the savings rates to 22%, 42% and 47% for the 2027-28 tax year. Rates on wages and pensions stay where they are, and the allowances do not change.

The calculator treats the first year of your term as 2026-27 and every later year at the new rates. That is why the tax per pound of taxed interest steps up in year 2. The Act names 2027-28 only; later years assume those rates carry on until Parliament says otherwise.

Since April 2016 banks and building societies pay interest without taking tax off, so all of it arrives as untaxed interest. After each tax year they report what they paid to HMRC. HMRC then collects any tax due in one of three ways.

• Through your tax code, if you are employed or draw a pension, which spreads the tax over the following year's pay.
• Through a Simple Assessment letter, which sets out the bill when a tax code cannot absorb it.
• Through Self Assessment, which is required when interest is over £10,000 or you already file a return.

Because the tax is paid from your other income rather than from the account, the balance column in the calculator grows gross. The headline figure deducts that tax, so it shows what the savings are really worth.

Interest inside an ISA is free of income tax and does not use up the Personal Savings Allowance. The ISA allowance lets you pay in up to £20,000 a year across all your ISAs. Switch the calculator to cash ISA and the same savings finish at £38,515.40, compared with £38,177.19 in a taxable account.

A policy paper of September 2026 plans to cap the cash ISA at £12,000 a year for savers under 65 from 6 April 2027, within the unchanged overall limit. At the time of checking it was a plan with draft regulations, not law.

Five situations move the tax away from the simple case above: a bond paying at maturity, income near the taper, a joint account, a Scottish taxpayer and dividends.

• A bond paying at the end: interest is taxed in the year it is paid. Paid at maturity, the example earns £5,872.50 in one year and loses £1,071.95 to tax, against £311.28 when paid yearly.
• Income near £100,000: interest counts towards adjusted net income. Above that level the Personal Allowance is withdrawn by £1 for every £2, and the calculator includes the extra tax this causes on your other income.
• A joint account: each holder is taxed on their own share of the interest, and each share uses that person's allowances.
• A Scottish taxpayer: wages are taxed at Scottish rates, but savings interest uses the UK savings rates, and the allowance follows the UK bands (section 12B). The tool uses the UK bands for everyone.
• Dividends sit above savings interest in the order of taxation and have their own dividend allowance, so they do not change the tax shown here.

Deposits with a UK authorised bank or building society are covered by the FSCS up to £120,000 per person per banking licence, from 1 December 2025 (Bank of England). Brands that share one licence share one limit. Interest earned counts towards the protected balance, so large savings may need spreading to stay covered.