Calculate savings growth with UK Personal Savings Allowance and tax
This calculator provides illustrative figures only. Actual returns depend on your provider, account terms, and prevailing interest rates. Tax treatment based on current HMRC rules for the Personal Savings Allowance.
Understanding how interest works on your savings is essential for making informed financial decisions. Whether you are building an emergency fund, saving for a house deposit, or simply growing your money in a high-interest account, knowing how much you will earn over time (and how much tax you will owe on that interest) helps you set realistic expectations and compare accounts effectively. This calculator handles both simple interest and monthly compound interest, includes regular monthly deposits, and applies the UK Personal Savings Allowance (PSA) to show your after-tax return. The PSA, introduced in April 2016, allows basic rate taxpayers to earn up to GBP 1,000 in savings interest tax-free, and higher rate taxpayers up to GBP 500. Additional rate taxpayers receive no PSA. With interest rates having risen significantly since 2022 following Bank of England base rate increases, more savers are now exceeding their PSA for the first time. This makes it more important than ever to understand the tax implications of your savings income and to consider tax-efficient options like Cash ISAs.
To use the savings interest calculator: 1. Enter your initial deposit in GBP. This is the lump sum you are starting with. 2. Enter the annual interest rate as a percentage. Check your bank or building society for the exact rate, which is usually expressed as AER (Annual Equivalent Rate). 3. Enter the number of years you plan to keep the money saved. 4. Optionally enter a monthly deposit if you plan to add money regularly. 5. Select your tax band. This determines your Personal Savings Allowance: basic rate (GBP 1,000), higher rate (GBP 500), or additional rate (GBP 0). Your tax band is based on your total taxable income. 6. Choose between simple interest (calculated only on the principal) and monthly compound interest (interest is added monthly and earns further interest). 7. Review the results. The calculator shows total value, interest earned, taxable interest above your PSA, tax owed, and your effective return after tax. The chart displays year-by-year growth.
The calculator uses two interest models: Simple interest: Interest = Principal x Annual Rate / 100 x Years Total Value = Principal + Monthly Deposits x 12 x Years + Interest Monthly compound interest: Each month: Balance = Previous Balance + Monthly Deposit Monthly Interest = Balance x Annual Rate / 100 / 12 New Balance = Balance + Monthly Interest This is repeated for every month in the period. Compound interest grows faster than simple interest because each month's interest is calculated on a progressively larger balance. Tax calculation (UK Personal Savings Allowance): Taxable Interest = Total Interest - PSA (if positive, otherwise zero) Tax = Taxable Interest x Tax Rate (20% basic, 40% higher, 45% additional) Effective Return = Total Value - Tax on Interest For example, GBP 10,000 at 5% simple interest for 3 years earns GBP 1,500 interest. A basic rate taxpayer has GBP 1,000 PSA, so GBP 500 is taxable at 20%, giving GBP 100 tax. The effective return is GBP 11,400.
The Bank of England base rate directly influences savings rates offered by UK banks and building societies. When the base rate rises, savings rates typically follow, though not always by the same amount. Fixed-rate accounts lock in a rate for a set period, which can be advantageous if rates are expected to fall. Cash ISAs offer a tax-free alternative. All interest earned in a Cash ISA is exempt from income tax and does not use your PSA. The annual ISA allowance is GBP 20,000 (2025-26 tax year). If your savings interest regularly exceeds your PSA, moving funds into an ISA can eliminate the tax liability entirely. For dedicated ISA projections, use our ISA Calculator. The Financial Services Compensation Scheme (FSCS) protects up to GBP 85,000 per person per authorised bank or building society. If you have more than this amount in savings, consider spreading it across multiple institutions for full protection.