How Much Interest Will I Earn on My Savings?

How much interest will I earn on my savings?

Start with balance × AER. On £10,000 at 4.5% AER you earn roughly £450 in a year if nothing else changes. With monthly compounding — how our calculator models growth — that rises to about £459, leaving a balance near £10,459.

If you add money each month, interest is earned on a rising balance, so the total is higher than a lump-sum-only estimate. Plug your numbers into the Savings Interest Calculator for an exact projection.

What affects how much interest you earn?

Four levers decide the result: how much you already have, how much you add each month, the AER, and how long you leave the money. Withdrawals, bonus rates that expire, and tax on non-ISA interest all reduce what you keep.

A 1% rate difference looks small for one year but compounds. £10,000 left for a year earns about £304 at 3% AER versus about £512 at 5% AER with monthly compounding — a gap of roughly £208 before tax.

• Starting balance — larger pots earn more pounds at the same rate.
• Monthly deposits — regular saving often beats a slightly higher rate with no top-ups.
• AER — the fairest way to compare UK savings products.
• Time — longer terms let compounding add more interest.

AER vs interest rate: which number to use?

Banks often show a gross rate and an AER. The AER (Annual Equivalent Rate) shows what you would earn over a year after compounding frequency is built in. Use AER when comparing easy-access accounts, fixed bonds and Cash ISAs.

Our Savings Interest Calculator assumes monthly compounding at the AER you enter. That matches how many UK accounts credit interest and keeps projections consistent across products.

Worked example: lump sum only

Leave £10,000 at 4.5% AER with no further deposits. After one year you have about £10,459 (£459 interest). After five years about £12,518 (£2,518 interest). After ten years about £15,670 (£5,670 interest).

Those figures assume the rate stays fixed and you withdraw nothing. Bonus rates that fall after a year, or moving money between accounts, will change the real outcome.

Worked example: balance plus monthly deposits

Start with £5,000 and add £200 every month at 4.5% AER. After five years you have paid in £17,000 and the pot is about £19,688 — roughly £2,688 from interest. After ten years, £29,000 paid in becomes about £38,075, with around £9,075 of interest.

Even £100 a month from a zero start at 4% AER builds about £6,630 in five years (£6,000 paid in, £630 interest). Small, steady deposits still matter.

Will I pay tax on my savings interest?

Interest inside a Cash ISA is always tax-free. Outside an ISA, the Personal Savings Allowance covers £1,000 a year for basic-rate taxpayers, £500 for higher-rate taxpayers, and £0 for additional-rate taxpayers.

On £20,000 at 4% AER, one year of interest is about £815. A basic-rate taxpayer stays under the £1,000 PSA; a higher-rate taxpayer has £315 above the £500 allowance taxed at 40%. See our Personal Savings Allowance guide and Savings Interest Tax Code Calculator if HMRC may adjust your tax code.

Easy-access, fixed and ISA — does the product change interest?

The maths is the same: balance, rate and time. The product changes access, rate certainty and tax. Easy-access accounts let you withdraw but rates can fall. Fixed-rate bonds lock a rate for a set term. Cash ISAs wrap interest in a tax-free allowance.

If non-ISA interest would breach your PSA, sheltering more in a Cash ISA often beats chasing a slightly higher taxable rate. Our Cash ISA vs Savings Account guide walks through that trade-off.

Estimate your own savings interest

Use the Savings Interest Calculator with your opening balance, monthly deposit, AER and years. For deeper compounding scenarios, try the Compound Interest Calculator. For tax-free wrappers, check the ISA Allowance Calculator.

Estimates only — advertised rates change, bonus periods end, and tax depends on your band. Confirm current AERs with the provider and check GOV.UK for Personal Savings Allowance rules.