Savings Interest Calculator

How savings interest works

Choose simple or compound interest, then enter your deposit amount, the interest rate and the term. The calculator shows the interest you will earn, your ending balance and the effective AER.

Formulae

• Simple interest: interest = principal × rate × years.
• Compound interest: ending balance = principal × (1 + r ÷ n)^{n × years}.
• AER: (1 + r ÷ n)ⁿ − 1.

Rates change over time and vary by provider — confirm the current AER and terms before you apply. Holding the balance in a cash ISA keeps the interest tax-free. Fixed-rate bonds may not allow early withdrawals.

Frequently Asked Questions

What is the difference between AER and the gross rate?

The gross rate is the nominal annual rate before tax. AER (Annual Equivalent Rate) shows what you would earn over a year once compounding is taken into account, so it lets you compare accounts on a like-for-like basis.

How is AER calculated?

AER = (1 + r ÷ n)ⁿ − 1, where r is the nominal annual rate and n is the number of compounding periods per year. Monthly compounding gives a slightly higher AER than annual interest.

Is savings interest taxable in the UK?

Interest is taxable, but most people have a Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate). Interest earned inside a cash ISA is always tax-free and does not use up your allowance.

What is a cash ISA?

A cash ISA is a tax-free savings wrapper. Any interest earned within it is free of Income Tax, and you can pay in up to the annual ISA allowance each tax year. It is a simple way to protect your savings from tax.

Simple vs. compound interest — which do banks use?

Most savings accounts and ISAs compound interest (usually monthly or annually) and quote an AER. Simple interest, paid only on the original deposit, is less common but useful for comparison.