Answers · UK 2025/26

How much interest will I earn on £10,000 in savings?

At a typical easy access rate of around 4% AER, £10,000 in savings would earn roughly £400 in interest over a year (before compounding effects). At a higher fixed-rate bond around 4.5-5%, the same amount could earn £450-£500. The exact figure depends on the specific interest rate, compounding frequency, and whether you make any additional deposits or withdrawals during the year.

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The interest earned on £10,000 depends primarily on the interest rate secured and how frequently that interest compounds, and comparing realistic scenarios helps set expectations for savings growth. **Basic calculation at different rates** At a 3% AER: £10,000 × 0.03 = £300 in the first year. At 4% AER: £400. At 5% AER: £500. These are simplified first-year figures assuming interest is calculated on the full £10,000 for the whole year with no additional deposits or withdrawals. **The effect of compounding frequency** If interest compounds monthly rather than annually, the effective return is slightly higher than the simple calculation above, since interest earned early in the year starts earning its own interest in subsequent months -- for example, £10,000 at 4% AER compounded monthly would produce very slightly more than a flat £400 after a full year, though the difference is usually modest for a single year. **Multi-year growth with compounding** Over multiple years, compounding has a more pronounced cumulative effect -- £10,000 at 4% AER compounded annually grows to roughly £10,400 after year 1, £10,816 after year 2, £11,248.64 after year 3, and approximately £12,166.53 after five years, illustrating how the growth accelerates as interest is earned on an increasingly larger balance. **Tax on the interest** Remember your Personal Savings Allowance affects whether this interest is actually tax-free -- basic-rate taxpayers can earn up to £1,000 in savings interest tax-free, higher-rate taxpayers up to £500, and additional-rate taxpayers have no allowance at all, meaning at higher rates or with larger sums, some or all of the £400-£500 interest on £10,000 could be taxable unless held within an ISA. **Comparing account types for £10,000** An easy access account might offer a lower but flexible rate; a 1-year fixed bond might offer a somewhat higher guaranteed rate in exchange for locking the funds away; a Cash ISA offers similar rates to standard accounts but with guaranteed tax-free treatment regardless of your total interest earned elsewhere -- the right choice depends on both the rate available and your need for access to the funds. **Worked example -- comparing ISA vs taxable account** A higher-rate taxpayer with £10,000 at 4.5% AER earns £450 interest. If held in a Cash ISA, all £450 is tax-free. If held in a standard taxable account and they have already used their £500 Personal Savings Allowance elsewhere, the £450 would be taxed at 40%, reducing the net interest to £270 -- illustrating why using ISA allowance for savings can matter significantly for higher-rate taxpayers. **Practical tip** Use the Savings calculator to model your specific amount, rate, and time horizon (including the effect of additional regular deposits if you plan to keep contributing), and always check current market rates across several providers before committing, since the best available rates for both easy access and fixed-term products can change frequently.