See how your savings grow with compound interest — and how long until you hit your goal. Initial deposit, monthly contributions and any interest rate.
Savings grow through compound interest — you earn interest on your interest as well as your principal. The ISA allowance for 2026/27 is £20,000 per year — any interest earned inside an ISA is completely tax-free. Outside an ISA, basic rate taxpayers get a £1,000 personal savings allowance before paying tax on interest; higher rate taxpayers get £500. In 2026, easy-access savings accounts are paying around 3.5–5% AER. On £10,000 at 4.5% AER over 5 years with no additional contributions, you would accumulate approximately £12,461 — £2,461 in interest. Always compare savings rates on AER (Annual Equivalent Rate), not gross rate, as AER accounts for compounding frequency and gives a like-for-like comparison.
Compound interest is the single most powerful force in personal finance — but it works so slowly at first that most people underestimate it. Here's how it actually works and why time is the biggest variable.
Simple interest pays you a fixed percentage of your original deposit each year. Compound interest pays you interest on your original deposit AND on all the interest already earned. The difference compounds over time.
The compounding effect accelerates in the later years. In years 1–5 the difference is small. By years 15–20 it becomes dramatic. This is why starting early matters far more than the amount you start with.
If your interest will exceed your personal savings allowance (£1,000 basic rate / £500 higher rate), an ISA protects all growth from tax. At 4.5%, you'd need over £22,000 saved before basic-rate tax kicks in — but higher earners hit the limit much faster.
If your total interest will comfortably stay below your allowance, a standard savings account with a better rate beats a lower-rate ISA. Always compare AER first — a 0.5% rate difference outweighs the tax benefit for most savers.
The Lifetime ISA (LISA) is a special case — the 25% government bonus (up to £1,000/year) makes it the best savings vehicle available for first-time buyers under 40 and for retirement. The catch: money can only be withdrawn for a first home purchase, at age 60, or with a 25% penalty.