Cash ISA Interest: Worked Examples at Different Rates
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The interest a Cash ISA balance earns is roughly the balance multiplied by the yearly rate, with a small extra amount when interest is added to the balance monthly, because later interest is then paid on earlier interest. On £10,000 at an assumed 3%, the first year comes to about £304 with monthly compounding. The rates in this guide are assumed for the arithmetic only: they are not forecasts, and they are not statements about what any account pays.
The site's rules data was last checked against gov.uk on 26 September 2026. Figures typed in this guide may not yet reflect a later change, and the descriptions of gov.uk pages are summaries that may also lag. The current figures are on the ISA rules at a glance page. General information only, not financial advice.
How is interest on a Cash ISA worked out?
The basic sum has three parts: the balance, the yearly rate and how often interest is added. If interest is added once a year, the sum is simple: balance multiplied by the rate. A balance of £10,000 at an assumed 3% would earn £300 over a year.
Many accounts add interest more often, most commonly monthly. Each month the provider works out one twelfth of the yearly rate and adds it to the balance. The next month's interest is then calculated on a slightly larger balance. That is compounding, and it is why monthly crediting gives a little more than annual crediting at the same headline rate.
The method used in the worked examples below is the same one as the site's Cash ISA calculator:
- The yearly rate is divided by 12 to give a monthly rate.
- Interest is added to the balance every month, and the next month's interest is worked out on the new total.
- Any regular payment goes in at the end of each month, so it starts earning from the following month.
- Every figure is rounded to the nearest pound at the end.
Real accounts are not required to work this way, which is covered further down.
What is the difference between AER and the gross rate?
Two labels appear on savings rates, and they describe the same account in different ways.
- Gross rate is the yearly rate before any compounding effect is counted. If interest is paid monthly, the gross rate is what is divided by 12 each month.
- AER (annual equivalent rate) is the rate you would get if the interest were added once a year, expressed so that accounts with different payment frequencies can be compared like for like. It already includes the effect of compounding.
The two are equal when interest is added only once a year. When interest is added monthly, AER comes out slightly above the gross rate. For example, an assumed gross rate of 3% added monthly works out to an AER of about 3.04%, and an assumed gross rate of 4% works out to about 4.07%. Going the other way, an account with an AER of 3% would have a gross rate of about 2.96% if interest is added monthly.
The practical point is that the two figures should not be mixed up. If the rate you have is an AER, the interest over a full year on a lump sum is simply the balance multiplied by that AER, provided nothing is paid in or taken out. If the rate is a gross rate with monthly crediting, the monthly method above applies.
How much interest could different balances earn in a year?
The table below shows the interest earned in the first year on a lump sum with no further payments, using the monthly method described above. The rates are assumed rates, not forecasts. They were chosen to show how the arithmetic scales, not because any account pays them.
| Balance | Assumed 2% | Assumed 3% | Assumed 4% |
|---|---|---|---|
| £6,000 | £121 | £182 | £244 |
| £10,000 | £202 | £304 | £407 |
| £15,000 | £303 | £456 | £611 |
A few things stand out when reading it.
- Interest scales in proportion to the balance. £15,000 earns two and a half times what £6,000 earns at the same rate.
- Interest also scales in proportion to the rate. Doubling the assumed rate roughly doubles the interest.
- The figures are a little higher than balance times rate. On £10,000 at an assumed 3%, simple annual crediting gives £300, while monthly crediting gives £304. The gap is small in one year and grows with time and with larger balances.
If interest were added only once a year, at the end, the result would be simply the balance multiplied by the rate. On £6,000 that gives £120, £180 and £240 at the assumed 2%, 3% and 4%, and on £15,000 it gives £300, £450 and £600.
What happens over several years with regular monthly payments?
A saver may add money as they go. This example uses an assumed opening balance of £6,000 and a payment of £200 at the end of every month, for one, five and ten years. Interest stays in the account and keeps compounding. The rates are assumed, not forecasts.
| Assumed rate | Total paid in after 1 year | Interest after 1 year | Balance after 5 years | Interest after 5 years | Balance after 10 years | Interest after 10 years |
|---|---|---|---|---|---|---|
| 2% | £8,400 | £143 | £19,240 | £1,240 | £33,871 | £3,871 |
| 3% | £8,400 | £216 | £19,899 | £1,899 | £36,044 | £6,044 |
| 4% | £8,400 | £289 | £20,586 | £2,586 | £38,395 | £8,395 |
Total paid in after five years is £18,000 (the £6,000 opening balance plus 60 payments of £200), and after ten years it is £30,000. Everything above that in the balance is interest.
Two features of the results are worth noticing. First, most of the balance comes from the money paid in, not from interest, especially at lower rates and over shorter periods. Second, interest grows faster than the years do: at the assumed 3% rate, the first five years produce £1,899 of interest and the next five produce a further £4,145, because the balance being compounded is larger.
One more comparison shows the effect of regular payments. The same £6,000 with no further payments would grow to £6,630, £6,970 and £7,326 after five years at the assumed 2%, 3% and 4%. Over the same five years the payments of £200 a month add much more to the final balance than the interest does.
Is Cash ISA interest taxed?
Gov.uk says you do not pay tax on interest on cash in an ISA, and that you do not need to declare ISA interest on a tax return. A flat-rate charge on interest on cash held in a stocks and shares or Innovative Finance ISA (other than a Junior ISA, regulation 4), made in law by regulations made on 10 September 2026 (SI 2026/1018, read on legislation.gov.uk on 6 October 2026) to apply from April 2027, is written for cash held in those ISAs; regulation 22A does not mention Cash ISAs (see upcoming ISA changes); it is not yet in force. GOV.UK sets this out on its page about how ISAs work and on the main Individual Savings Accounts page. That is why the examples above show the interest as earned, with no tax taken off.
This is different from interest on an ordinary savings account, where interest above certain thresholds can be taxed depending on your income. Gov.uk sets tax-free allowances for interest outside an ISA: the Personal Savings Allowance is £1,000 for a basic-rate taxpayer, £500 for a higher-rate taxpayer and £0 for an additional-rate taxpayer, and up to £5,000 of interest may fall within the starting rate for savings if your other income is low (see is ISA interest taxable? for the condition). Whether outside-ISA interest is taxable for you depends on your total income, so it is worth checking your own position.
What limits how much can go into a Cash ISA?
The tax-free treatment applies to money inside the ISA, and there is a cap on how much can be paid in. The overall ISA allowance is £20,000 in each tax year, running from 6 April to 5 April, and it is shared across all the ISAs a person pays into that year. The rules can change over time, so the 2026-27 figures on this page are read from the site's rules data. The balances in the tables are balances, not payments made in one tax year. From April 2027, regulations made on 10 September 2026 (SI 2026/1018, regulation 6, read on legislation.gov.uk on 6 October 2026) limit payments into cash ISAs to £12,000 a year for savers who are under 65 at the end of the tax year, inside the overall allowance; that is made in law, not yet in force. The site's ISA rules page sets out the current limits, including any separate limit for cash.
The Cash ISA calculator leaves out any deposit that would take the total for a tax year above the limit for the age band selected, and says so in its result. A monthly payment that looks affordable can still hit the cap if it is large enough.
Can the rate change, and how does that affect the sum?
Yes. Some Cash ISAs pay a variable rate, which the provider can change. Others are fixed for a stated term, so the rate is set for that period. The worked examples above use one steady rate for the whole period, which is a simplification. In practice:
- With a variable rate, the interest figure is only as good as the rate assumed. If the rate moves, the calculation would need to be repeated from that point.
- With a fixed rate, the rate is known for the term, but the money may be tied up or subject to charges if taken out early, and a new rate applies when the term ends.
- Changing rates are the reason some savers look at moving to another account. The site's fixed-rate ISA switch calculator compares the arithmetic of staying with switching. For background on how rate movements feed through, see the guide on the impact of interest rates on a Cash ISA, and for a look back at one past year, Cash ISA growth rates in 2024. Past rates do not indicate future ones.
Why might a real account give a different figure?
The examples here are models. A real account can differ in several ways, and each is worth knowing about:
- Bonus rates. Some accounts pay an extra rate for a limited period, after which the rate drops. A single rate for the whole period will not match this.
- Access rules. Withdrawal limits, notice periods or charges can change what you keep, and money taken out may stop earning.
- Fees. Some accounts have charges that reduce the return.
- How interest is credited. Interest may be worked out daily, credited monthly, yearly or at the end of a term, and paid to the account or to another one. This can change the total slightly.
- Timing of payments. The examples assume payments land at the end of each month. Payments made earlier in the month would earn slightly more.
- Rounding. Providers round at different points, so a penny here and there can differ.
What to check with your provider
- Is the rate variable or fixed, and for how long does it apply?
- Is the quoted rate an AER or a gross rate, and is there a bonus that ends?
- How often is interest worked out and when is it added to the balance?
- Are there limits, notice periods or charges on withdrawals?
- Are there any fees that come off the interest?
Frequently asked questions
How much interest does £10,000 earn in a Cash ISA?
That depends entirely on the rate, which varies by account and can change. At an assumed rate of 3%, which is not a forecast, £10,000 would earn about £300 in a year if interest were added once, or about £304 with monthly compounding.
Is Cash ISA interest added monthly or yearly?
It depends on the provider. Some add interest monthly, some yearly and some at the end of a fixed term. The AER lets you compare accounts with different frequencies, because it converts each into a yearly equivalent.
Do I pay tax on interest inside a Cash ISA?
GOV.UK says you do not pay tax on interest on cash in an ISA, and that you do not need to declare ISA interest on a tax return. The limit on paying in each tax year still applies.
Are these figures what I will actually earn?
No. They are arithmetic examples using assumed rates, not forecasts or promises. Real accounts may have variable rates, bonus periods, fees or different ways of crediting interest, so the actual result can be higher or lower.
This guide does not constitute financial advice. Your personal situation, tax position, and savings goals may mean different strategies are appropriate. Consider speaking to a regulated financial adviser if you are uncertain.
