How compound interest grows your savings
When interest is added to your account, it starts earning interest itself. Over short periods the effect is small. Over decades it does most of the work:
| Saving £200 a month at 4.5% | Paid in | Interest | Balance |
|---|---|---|---|
| After 10 years | £24,000 | £6,095 | £30,095 |
| After 30 years | £72,000 | £77,413 | £149,413 |
After 30 years, interest makes up 52% of the pot. A one-off £10,000 left for 10 years at 4.5% grows to £15,530.
Reaching a target
Switch to Reach a target to work backwards. Enter how much you want and by when, and the calculator finds the monthly saving needed. To build a £20,000 house deposit in five years at 4.5%, you’d need to save about £299 a month. It also shows how long your current saving would take to get there.
ISA vs taxed savings
Choose the account type under Tax & timing:
- ISA: all interest is tax-free.
- Taxed at 20%, 40% or 45%: we take tax off the interest each year at that rate.
In reality the Personal Savings Allowance makes the first £1,000 (basic rate) or £500 (higher rate) of interest each year tax-free, so for modest balances a normal savings account may be effectively tax-free too. Larger balances, and anyone paying the additional rate, benefit most from an ISA. From April 2027 the tax rate on savings income rises by 2 percentage points.
Monthly vs yearly interest
Accounts pay interest monthly or yearly. Because we use AER, the annual return is the same either way for a lump sum. With regular deposits, monthly interest and depositing at the start of the month both add a little more. Toggle them to compare.
Increase your saving each year
If you plan to save more as your pay rises, set Increase saving each year by, for example 3%. Small increases make a big difference over long periods.
Make sure your money keeps up with inflation
A savings rate below inflation means your money buys less over time, even as the balance grows. Compare your rate with the current CPI. For long-term goals of 5+ years, many people also consider a stocks and shares ISA or pension, which can grow faster but can also fall in value.
Where to save
- Easy-access account or ISA: for your emergency fund, ideally 3–6 months of essential spending.
- Regular saver: higher rates for monthly deposits, usually capped at £200–£500 a month.
- Fixed-rate bond or ISA: a higher rate for locking money away.
- Lifetime ISA: if you’re 18–39 and saving for your first home or retirement, the government adds 25% (up to £1,000 a year).
Frequently asked questions
How much will I have if I save £200 a month for 10 years?
At 4.5% AER with interest paid monthly in an ISA, about £30,095 — £24,000 of your own money and £6,095 of interest.
What's the difference between AER and gross rate?
The gross rate is the interest rate before compounding. AER (Annual Equivalent Rate) shows what you'd earn in a year including compounding, so you can compare accounts that pay interest monthly and yearly fairly. We use AER.
How much can I put in an ISA?
£20,000 per tax year across all your ISAs. From 6 April 2027, people under 65 can put no more than £12,000 of that into cash ISAs.
Do I pay tax on savings interest?
Interest in an ISA is tax-free. Outside an ISA, the Personal Savings Allowance makes the first £1,000 of interest tax-free for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate. From April 2027 savings income above the allowance is taxed at 22%, 42% or 47%.
What is compound interest?
Earning interest on your interest. Each time interest is added, the next interest payment is calculated on a bigger balance, so growth accelerates over time.
How often should interest be paid?
For a lump sum, it doesn’t matter if you compare by AER. With regular deposits, monthly interest earns slightly more.
Is it worth saving if inflation is higher than my rate?
Saving still protects you from debt and emergencies, but your money loses buying power. For long-term goals consider investing as well.
How much emergency fund should I have?
A common guide is 3 to 6 months of essential spending in easy-access savings, before overpaying debts or investing. See overpay or save.
Sources
Results are estimates for education and planning, not financial advice. They depend on the figures you enter and the assumptions shown above.