Savings Interest Calculator

How much interest you actually earn on savings, and how much of it you genuinely keep after tax, depends on your specific balance, the rate, and precisely how much of your Personal Savings Allowance the interest uses up. This calculator works out both figures exactly for a one-year snapshot — gross interest earned, and what remains after tax is correctly applied only above your specific allowance threshold, using your actual account type, tax band and any monthly top-up you plan to add.

What AER Actually Means and Why It’s the Number to Compare

AER — Annual Equivalent Rate — shows what a rate would work out to over a full year once compounding is properly accounted for, which is precisely why it is the correct figure to compare between different accounts, rather than a headline “gross rate” that might be quoted monthly, quarterly, or under some other compounding schedule. Two accounts advertising seemingly different headline rates can have an identical AER once compounding frequency is accounted for, which is exactly the kind of discrepancy AER is specifically designed to remove from the comparison.

This is worth checking specifically when a savings offer looks unusually attractive at first glance — comparing the AER figures directly, rather than the headline percentage each provider chooses to display most prominently, avoids being misled by a compounding-frequency difference that makes one offer look better than it genuinely is once compared on equal terms.

The Exact PSA Calculation, Not an Approximation

This calculator applies your Personal Savings Allowance precisely as a threshold — £1,000 for basic-rate taxpayers, £500 for higher-rate, £0 for additional-rate — taxing only the interest genuinely above that specific figure, rather than applying a flat percentage reduction across all interest earned regardless of amount. This distinction matters considerably for anyone whose interest sits close to their allowance: a flat-rate approximation would either overstate or understate the real tax due, while this calculator’s threshold-based approach reflects precisely how PSA genuinely works in practice.

This precision matters most specifically for balances and rates that produce interest landing close to, but not dramatically above, your specific allowance — for interest that is either clearly well within the allowance or clearly, substantially above it, a rougher approximation would happen to land close to the correct figure anyway, but the exact threshold calculation removes any need to judge which situation applies to your own numbers.

Seeing the Threshold Calculation in Practice

£30,000 at 4.2% AER for a higher-rate taxpayer earns roughly £1,284.54 in interest over the year, but only £784.54 of that is genuinely taxable, since the first £500 sits within the Personal Savings Allowance. Tax due on the taxable portion comes to roughly £313.82, leaving net interest of around £970.72 — a considerably more precise figure than simply applying 40% tax to the entire £1,284.54 interest amount would produce, which would incorrectly ignore the allowance entirely.

Applying a flat 40% to the full interest amount without the allowance would have shown roughly £513.82 in tax — £200 more than the correct £313.82 — understating net interest by exactly that amount. This is precisely the kind of error a threshold-aware calculation avoids, and precisely why a rough mental estimate can meaningfully mislead anyone trying to gauge their real, after-tax return.

The Moment an ISA Genuinely Starts Paying Off

For interest genuinely staying within your Personal Savings Allowance, a standard taxable savings account at a competitive rate can perform just as well as a Cash ISA, since neither is actually being taxed in practice. The calculation genuinely changes once your interest crosses your specific allowance threshold — from that point, every additional pound of interest in a taxable account loses a portion to tax, while the equivalent amount in an ISA remains completely untouched regardless of how large your balance or interest grows. This makes the ISA genuinely more valuable specifically for larger balances or higher rates, where crossing the allowance is more likely, rather than being uniformly better regardless of your specific circumstances. Our ISA Growth Calculator is useful for modelling the tax-free alternative directly, and our Savings Calculator is worth checking if you want to project growth across multiple years combining a lump sum and ongoing monthly contributions, rather than this calculator’s single-year snapshot.

Frequently Asked Questions

Important Information

This calculator provides an estimate based on the figures you enter and standard 2026/27 Personal Savings Allowance rules for general information purposes only and does not constitute tax or financial advice. See our Disclaimer for further information.