Savings Interest Calculator
Find out exactly how much interest your savings will earn over a set period, after Personal Savings Allowance and income tax.
Reviewed by Richard Ross · Last updated April 2026
How Savings Interest Calculator works
Personal Savings Allowance (PSA)
UK taxpayers receive a tax-free savings allowance: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and £0 for additional-rate taxpayers. Interest within the PSA is received gross and is not taxable.
Tax on savings interest above the PSA
Interest above the PSA is taxed at your marginal income tax rate: 20% (basic), 40% (higher), or 45% (additional rate). Banks report interest to HMRC. Tax is collected via your Self Assessment return or by adjusting your PAYE tax code.
Avoiding savings tax with ISAs
All interest earned inside an ISA is tax-free regardless of amount. If your savings interest regularly exceeds your PSA, moving savings into a Cash ISA effectively gives you a tax-free wrapper on the excess.
Starter Rate for Savings and non-taxpayers
Non-taxpayers and those with low income may qualify for the Starter Rate for Savings, which allows up to £5,000 of savings interest at 0% tax. This applies when non-savings income (salary, pension) is below the Personal Allowance plus £5,000 threshold. Combined with the £1,000 PSA, a non-working spouse or low earner could receive up to £6,000 of savings interest tax-free outside an ISA — a significant advantage for couples with large savings balances.
When does it make sense to use an ISA instead?
If your annual savings interest is likely to exceed your PSA, a Cash ISA pays off immediately. A basic-rate taxpayer earning £1,001 in interest faces 20% tax on just £1 — the marginal impact is low initially. But at £20,000 in savings earning 5%, annual interest is £1,000 exactly; above that threshold, tax starts to bite. Higher-rate taxpayers hit the £500 PSA limit at just £12,500 in savings at 4% — making ISA use far more urgent. The ISA allowance is £20,000 per year; unused allowance cannot be carried forward.
Source: HMRC — Personal Savings Allowance, GOV.UK (gov.uk/apply-tax-free-interest-on-savings). HMRC — ISA allowances (gov.uk/individual-savings-accounts). Bank of England — base rate (bankofengland.co.uk).
Frequently asked questions
How much interest can I earn before paying tax?
Basic-rate taxpayers can earn up to £1,000 interest tax-free (Personal Savings Allowance). Higher-rate taxpayers: £500. Additional-rate taxpayers: £0 (all interest is taxable). Savings in ISAs are always tax-free.
Do I need to declare savings interest?
If interest is below your PSA, no action is needed. If above, HMRC will usually adjust your tax code automatically (PAYE) or you must declare it on Self Assessment. Banks report interest directly to HMRC.
What is a good savings interest rate in 2025?
With the Bank of England base rate at 4.5% in early 2025, easy-access savings accounts offer 3.5–5%. Fixed-rate bonds for 1–2 years offer 4–5.5%. ISAs typically track slightly below equivalent taxable accounts.
How is savings interest taxed through PAYE?
HMRC automatically receives information about your savings interest from banks. If you are a PAYE employee and owe tax on interest, HMRC adjusts your tax code to collect the tax through your salary the following year. You do not need to fill in a Self Assessment return solely because of savings interest, unless HMRC specifically asks you to.
Does NS&I interest count towards my Personal Savings Allowance?
Most NS&I products — including Direct Saver and Income Bonds — pay taxable interest that counts towards your PSA. However, NS&I Premium Bonds prizes are entirely tax-free and do not count towards the PSA at all. NS&I fixed-term savings bonds are taxable in the same way as other savings accounts.
What is the difference between AER and gross interest rate?
AER (Annual Equivalent Rate) shows what you would earn if interest were compounded annually, making it easier to compare accounts that pay interest at different frequencies (monthly, quarterly, annually). Gross rate is the contractual rate before compounding. For an account paying 4.8% gross monthly, the AER is approximately 4.91%. Always compare AER, not gross rates, when choosing between savings accounts.
How do I find the best savings interest rates in the UK?
Interest rates change frequently. Comparison sites like MoneySavingExpert (savings section), Moneyfacts, and Which? update daily with the best easy-access, fixed-rate bond, and notice account rates. FSCS protection (up to £85,000 per institution) applies to all UK-regulated banks and building societies. Spreading savings across institutions if you hold more than £85,000 ensures full protection.
Does the Bank of England base rate affect my savings rate?
Yes, but not automatically. The Bank of England base rate sets the rate at which banks borrow from the central bank, which influences — but does not determine — savings rates. In 2022-2024, the base rate rose sharply from 0.1% to 5.25%, but savings rates lagged significantly. Some banks pass on rate changes quickly; others do not. During rate-rising cycles, switching providers regularly can capture better rates.
Is it better to have a high interest rate or a high starting balance?
Both matter, but balance has a larger effect in the short term. On £10,000 at 3%: interest after 1 year is £300. On £5,000 at 6%: interest is £300. The same result — so a higher rate can compensate for a lower balance over time. Over multiple years, compounding amplifies both factors. For longer time horizons, the interest rate becomes increasingly important as it compounds on a growing base.
What interest rate should I use for financial planning?
Use a conservative estimate for planning — lower than the current best rate, because rates change. For cash savings over 1-2 years: 3-4%. For balanced investment portfolios over 5-10 years: 5% real (above inflation). For equity-heavy investments over 10+ years: 6-7% nominal. The calculator lets you test different rates — model a pessimistic scenario first to ensure your plan is robust before relying on optimistic returns.
Related calculators