Best Savings Rates For Lump Sum Fixed Term

Compound Interest Formula:

\[ FV = P \times (1 + \frac{r}{n})^{(n \times t)} \]

Principal Amount (P):

Annual Interest Rate (r):

Compounding Frequency (n):

Time Period (t):

years

Future Value (FV):

Interest Earned:

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1. What Is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It's often referred to as "interest on interest" and can cause wealth to grow exponentially over time.

2. How Does The Calculator Work?

The calculator uses the compound interest formula:

\[ FV = P \times (1 + \frac{r}{n})^{(n \times t)} \]

Where:

\( FV \) — Future value of the investment
\( P \) — Principal investment amount
\( r \) — Annual interest rate (decimal)
\( n \) — Number of times interest is compounded per year
\( t \) — Time the money is invested for in years

Explanation: The more frequently interest is compounded, the greater the return on your savings. This calculator helps you visualize how different compounding frequencies affect your returns.

3. Best Savings Rates In The UK

Current Rates: As of September 2025, the best fixed-term savings rates in the UK reach up to 4.52% AER (Annual Equivalent Rate) according to MoneySavingExpert. These rates are for lump sum investments with terms typically ranging from 1 to 5 years.

4. Using The Calculator

Tips: Enter your principal amount in pounds, the annual interest rate as a percentage, select how often interest is compounded, and the time period in years. The calculator will show your future balance and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.

Q2: How does compounding frequency affect returns?
A: The more frequently interest is compounded, the higher your returns will be. Daily compounding yields slightly more than monthly, which yields more than annual compounding.

Q3: Are fixed-term savings accounts safe?
A: In the UK, savings up to £85,000 per person per financial institution are protected by the Financial Services Compensation Scheme (FSCS).

Q4: Can I access my money before the term ends?
A: Fixed-term accounts typically restrict access to your funds until the term ends, though some may allow early withdrawal with a penalty.

Q5: Is the interest taxable?
A: Interest earned on savings may be subject to tax, though most UK residents have a Personal Savings Allowance that allows some tax-free interest income.