Savings Interest Calculator

Savings interest: what you keep after tax

Since banks stopped deducting tax at source in 2016, savings interest arrives gross and the tax — if any — is collected later, usually through your tax code. Most people pay nothing, thanks to the Personal Savings Allowance (PSA): £1,000 of interest tax-free for basic-rate taxpayers, £500 for higher-rate, and nothing for additional-rate taxpayers. The calculator above compounds your savings monthly and then applies the PSA year by year, because the allowance renews annually — taxing a five-year total in one lump would badly overstate the bill.

Worked example — why your tax band matters more than your bank

Put £20,000 into a 4.5% account for five years. It grows to about £25,036, earning £5,036 of interest. As a basic-rate taxpayer you owe just £31 in tax — the £1,000 yearly allowance swallows nearly all of it. As a higher-rate taxpayer the same account costs you £1,014 in tax, because your allowance is half the size and the rate is double. Inside an ISA, the tax is £0 either way. Same money, same bank, same rate — three different outcomes.

Getting more of your interest

• The PSA covers all your accounts combined, not each one. Add up interest across every savings account, current account and bond before assuming you are under the limit.
• Watch the band boundary. Crossing into higher rate halves your PSA to £500 and doubles the tax rate on the excess — a pay rise can quietly make your savings more expensive.
• ISAs earn their keep at scale. On small balances the PSA usually makes an ISA unnecessary; on larger ones, or if you are a higher-rate taxpayer, the tax-free wrapper is where the value appears.
• The starting rate for savings can give up to £5,000 of interest tax-free on top of the PSA — but only if your non-savings income is low; it tapers away as other income rises above the personal allowance.
• Fixed bonds can bunch your interest. If a multi-year bond pays all interest at maturity, it may land in one tax year and blow through your allowance — annual-interest versions spread it.
• Compare AER, not the headline rate — AER already accounts for how often interest is compounded.

Additional questions

How do I actually pay the tax?

Banks report interest to HMRC automatically. If you owe tax, HMRC usually adjusts your PAYE tax code the following year, so it comes out of your salary. Self Assessment filers declare it on the return instead.

Does the PSA apply to premium bonds or dividends?

No. Premium Bond prizes are tax-free by their own rules, and dividends have a separate (much smaller) dividend allowance. The PSA covers interest: savings accounts, bonds, credit-union payouts and some peer-to-peer lending.

Is my money safe if the bank fails?

Deposits are protected by the FSCS up to £85,000 per person per banking licence — note licence, not brand: some banks share one. Above that, split across institutions.