Why a regular saver pays far less than the rate suggests
This is the single most common surprise in savings, and it is not a trick. A lump sum sits for the whole term. In a regular saver, only the first payment does — the final one earns a single month of interest.
100 a month at 4.0% for 12 months
Total paid in 1,200 · interest about 26 · that is 2.17% of what you paid in
The same 1,200 as a lump sum for a year at 4.0% earns 48.
Nothing is being withheld from you. Your money was simply only in the account for about half the term on average, so it earns about half of the headline rate. Comparing a regular saver’s advertised rate against a fixed deposit’s is comparing two different things.
Simple interest against monthly compounding
Simple interest is paid on the original principal alone. Monthly compounding folds each month’s interest back into the balance so that later interest is earned on it as well. Over one year the difference is small; over ten it is not. Most advertised deposit and regular-saver rates are quoted as simple interest, so switch the toggle to match the product rather than assuming.
Tax on interest is not the same anywhere
The rate matters, and so does the allowance — the amount of interest that is taxed at nothing. On smaller balances the allowance often changes the answer more than the rate does. Pick a country above and both fields are filled in; every figure stays editable, because the right number depends on the rest of your income.
| Country | Rate on interest | Tax-free allowance |
|---|---|---|
| Korea | 15.4% withheld at source (14% income tax + 1.4% local surtax) | None in general |
| United States | Ordinary income — your federal marginal rate, plus any state tax | None; interest is reported on Form 1099-INT |
| United Kingdom | 20 / 40 / 45% by band in 2026/27, rising to 22 / 42 / 47% from April 2027 | Personal Savings Allowance: £1,000 basic rate, £500 higher rate, nil additional rate |
| Germany | 26.375% (25% Abgeltungsteuer + 5.5% solidarity surcharge); about 28% with church tax | Sparerpauschbetrag: €1,000, or €2,000 jointly assessed |
Two of these are worth spelling out. The United States has no flat rate on savings interest at all — it is taxed as ordinary income, so the correct figure is your own marginal rate and nobody can preset it for you. And the UK rates rise in April 2027, which is close enough to matter for anything you are fixing for more than a year.
What this does not model
Interest is taxed once, at maturity, against a single allowance. Real tax years do not work that way: an allowance renews annually, and interest may become taxable when it is credited rather than when you withdraw it. For a multi-year deposit that makes this a conservative estimate of the tax rather than an exact one. Tax-sheltered accounts — an ISA, a Roth IRA, a Korean tax-exempt savings account — are not modelled either; for those, set the rate to 0.
Common questions
- Why does a regular saver earn so much less than its headline rate?
- Because only the first payment is invested for the full term. The last one earns a single month of interest. On a 12-month plan the average money is in for about half the term, so the return on everything you paid in comes to roughly half the quoted rate.
- What is the difference between simple interest and monthly compounding?
- Simple interest is paid on the original principal only. Monthly compounding adds each month of interest to the balance, so the next month earns interest on it too. The longer the term, the wider the gap.
- How is tax on interest handled?
- Pick a country and the rate and tax-free allowance are filled in for you, or type your own. Tax is charged on the interest above the allowance. Both values are editable because the correct figures depend on your other income.
- Which currency does this use?
- None in particular. Enter the deposit, the allowance and every other figure in the same currency and the result holds.