UK Savings & ISA Calculator

Yes, on non-ISA accounts. The Personal Savings Allowance lets basic-rate taxpayers earn £1,000 of interest tax-free per year; higher-rate £500; additional-rate £0. Interest above your PSA is taxed at your marginal income-tax rate (20%, 40% or 45%). Interest inside any ISA - Cash, Stocks & Shares or Lifetime - is completely tax-free and does not count toward your PSA.

Every UK adult can contribute up to £20,000 per tax year (April 6 to April 5) across any combination of ISAs. You can split it: e.g. £15,000 into a Cash ISA and £5,000 into a Stocks & Shares ISA in the same year. Lifetime ISA contributions count toward your £20,000 overall limit and have their own £4,000 annual cap. Allowance is use-it-or-lose-it - unused portion doesn't carry forward.

Cash ISAs work like savings accounts - fixed interest rate, FSCS-protected up to £85,000, ideal for under-5-year goals or an emergency fund. Stocks & Shares ISAs invest in funds, shares and bonds - higher long-run return (UK equity has averaged ~5% real per year) but with year-to-year volatility. Most UK savers use both: cash for short-term goals and an emergency fund, stocks for retirement and decade-plus horizons. Full comparison guide here.

The Lifetime ISA pays a 25% government bonus on contributions up to £4,000/year. To keep the bonus you must use the money for a first-home purchase under £450,000, or wait until age 60. Any other withdrawal triggers a 25% charge on the amount taken - not just the bonus, but the original contribution too. So you can actually lose money: a £4,000 contribution + £1,000 bonus = £5,000, and the 25% charge on a £5,000 withdrawal is £1,250, leaving you with £3,750 (less than you put in).

Compound interest means each period's interest is added to the balance and earns interest itself - so your money grows faster than with simple interest. For example, £10,000 at 5% AER compounded monthly grows to ~£16,289 after 10 years; the same at simple interest would be £15,000. Most UK savings accounts compound either monthly or annually. Daily compounding is technically slightly faster but the difference at typical UK rates is less than 0.1% over 10 years.

AER (Annual Equivalent Rate) is the standardised rate UK savings providers must quote - it shows what you'd earn over a year assuming the headline rate is compounded into the balance. AER is the figure you should compare between accounts. The "gross" rate is the interest rate without compounding factored in. For accounts that compound monthly, the AER will be slightly higher than the gross headline rate.