Savings Calculator

What the savings calculator does

The savings calculator models compound growth on a lump sum, regular monthly contributions, or both, at any UK AER you supply. Inputs include the starting balance, monthly contribution, headline AER, term in years, and compounding frequency (annual, monthly, or daily). Outputs show the final balance, total interest earned, and the split between contributions and interest.

The tool handles three common UK scenarios: a Cash ISA inside the £20,000 annual allowance (gov.uk, 2026/27), a regular saver capped at a fixed monthly deposit, and a standard taxable account where interest above the Personal Savings Allowance (HMRC, 2026/27) is taxed at the saver's marginal income-tax rate. The output surfaces ISA-allowance use and PSA context where the entered numbers cross those thresholds.

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When to use this calculator

The tool handles three planning patterns: sizing a £20,000+ house-deposit goal, choosing between Cash ISA and taxable savings once interest crosses the £500 PSA threshold, and building an emergency fund. The £20,000 figure aligns with the annual ISA allowance (2026/27); the £500 figure is the higher-rate Personal Savings Allowance (HMRC). Run figures from your own situation to see the split between contributions and interest over the chosen term.

Worked example: £10,000 lump sum at 5% AER over 10 years

A £10,000 lump sum at 5% AER compounded annually grows to £16,289 after 10 years, producing £6,289 in interest. The arithmetic is £10,000 × 1.05^10 = £16,289.

The same £10,000 earning 5% simple interest — interest paid out each year rather than added to the balance — reaches £15,000 over the same 10 years (£10,000 + £500 × 10). The £1,289 gap between the two figures is the compounding gain: interest earned on previously credited interest. The gap widens at higher rates and over longer horizons. At 5% AER for 20 years, the same £10,000 reaches £26,533, of which £6,533 is interest-on-interest. The figures are reproducible by entering Starting Balance = £10,000, Monthly Contribution = £0, AER = 5%, Term = 10 years, Compounding = annual.

Worked example: £200/month regular saver at 4.5%

A regular saver paying 4.5% AER on £200/month for a 12-month term pays roughly £58 in interest at the end of the term, not £108 — under the start-of-month deposit convention most UK regular savers adopt. The headline rate applies to each deposit only for the months it sits in the account; the first £200 earns twelve months of interest, the twelfth £200 earns one month, and so on. Average balance across the year is £1,300, and £1,300 × 4.5% ≈ £58.

Extend the same £200/month to a 5-year standard easy-access account compounded monthly at 4.5% AER (end-of-month deposit, ordinary-annuity convention), and the end balance is approximately £13,429 — £12,000 in contributions plus £1,429 in interest. Same monthly deposit, longer horizon, different compounding conventions, very different outcome from the 12-month regular saver.

Worked example: Cash ISA vs taxable account for a higher-rate taxpayer

A higher-rate taxpayer holding £20,000 at 4.5% AER earns £900 in year-one interest. The £500 Personal Savings Allowance (HMRC, 2026/27) covers the first £500; the remaining £400 is taxed at 40%, producing £160 of income tax. The Cash ISA wrapper shelters the full £900 from tax (gov.uk, 2026/27).

Over 5 years, the ISA grows £20,000 to £24,923 at 4.5% compounded annually (£4,923 of retained interest). The taxable equivalent loses roughly £160 a year to income tax once the balance pushes interest above the £500 PSA, so the ISA wrapper retains around £900-£1,000 more interest over a 5-year horizon at this rate.

The breakeven balance sits at around £11,111 at 4.5% AER for a higher-rate taxpayer: above that figure, every additional pound of interest crosses the PSA threshold.

AER vs gross interest rate

AER — the Annual Equivalent Rate — is the standardised figure used to compare UK savings products on a like-for-like basis. It bakes in the compounding frequency, so a monthly-compounded account and an annually-compounded account can be compared on a single number. FCA Banking Conduct of Business rules require AER disclosure on UK savings products (FCA Handbook BCOBS 4).

Gross is the headline rate before tax and before compounding effects are normalised. A 4.4% gross rate compounded monthly works out to roughly 4.49% AER once the monthly compounding is factored in.

Compounding frequency

How often interest is added to the balance changes the final figure. A £10,000 lump sum at 5% over 10 years reaches £16,289 with annual compounding, £16,470 with monthly compounding, and £16,487 with daily compounding. The marginal gain shrinks rapidly as frequency rises — daily compounding adds only £17 over monthly. UK easy-access savers and current accounts typically credit interest monthly; fixed-rate bonds vary by provider, with some paying interest annually and others holding all interest until maturity.

Regular saver mechanics

UK regular savers typically cap monthly contributions between £200 and £500 over a 12-month term, paying headline rates of 5-8% AER (MoneyHelper). The headline rate applies to each monthly deposit for the time it sits in the account, so the effective return on the full year's contributions works out to roughly half the headline rate by end of term.

Most providers require an active current account with the same bank or building society. At maturity, the account usually converts to a lower-rate easy-access saver and the balance becomes available to move.

Real return after inflation

Real return is the nominal AER minus the inflation rate. At 4.5% nominal with CPI inflation running at 3% (ONS, 2025), the real return is roughly 1.5%. Over long horizons, cash deposits earning below the inflation rate lose purchasing power even as the nominal balance grows. The framing matters when comparing cash savings against inflation-linked alternatives such as NS&I Index-linked Savings Certificates (currently closed to new investors) or index-linked gilts.

FSCS deposit protection

The Financial Services Compensation Scheme covers eligible deposits up to £85,000 per person per UK banking licence if an authorised bank or building society fails (FSCS). Joint accounts are covered up to £170,000. Sister brands sharing a single banking licence share the limit — Halifax and Bank of Scotland, for example, both sit under the Bank of Scotland licence. Balances above £85,000 are commonly split across separately authorised institutions to keep full protection.

Is AER the same as the headline rate I see in adverts?

Not always. AER normalises for compounding frequency and is the figure to compare like-for-like between UK savings products. Gross is the headline rate before tax and before compounding effects are standardised. FCA Banking Conduct of Business rules require AER disclosure on UK savings products (FCA Handbook BCOBS 4).

Do regular savers really pay the headline rate on every pound?

No. The headline AER applies to each monthly deposit only for the months it remains in the account. Because contributions build the balance progressively over the year, the effective return on total contributions works out to roughly half the headline rate over a standard 12-month term (MoneyHelper).

How much of my savings is protected if my bank fails?

FSCS protects eligible deposits up to £85,000 per person per UK banking licence (£170,000 on joint accounts) if an authorised bank or building society fails (FSCS). Sister brands sharing a single licence share the limit. Balances above the cap are commonly split across separately authorised institutions to retain full protection.

What is my real return after inflation?

Real return is the AER minus the inflation rate. At 4.5% AER with CPI inflation running at 3% (ONS, 2025), the real return is roughly 1.5%. If inflation exceeds the AER, the nominal balance still grows but its purchasing power falls in real terms.