What is Net rate? - Savings - Guides - Moneyfacts


What is Net rate?

What is Net rate?

Category: Savings

Updated: 06/04/2016
First Published: 04/02/2011

What does net rate mean?

A net rate is designed to show you the rate of interest you'd receive on a savings account after tax (specifically after basic rate tax of 20%) has been deducted.

You may see a net rate of interest displayed by some banks and building societies on literature or websites, but as interest is now paid without the deduction of tax, net rates may not be so well publicised (but they're still relevant if you receive more interest than your Personal Savings Allowance allows).

As with gross rate, the net rate shows you what you'd receive at the outset of taking out the savings account. It doesn't take into account compound interest (where you earn interest on your initial investment and any accumulated interest), and nor does it give a truer annual rate like an AER does, if the savings account you are looking at has an introductory bonus of less than a year.

As well as this, a net rate normally only shows the rate of interest you'd receive at outset if you're a basic rate taxpayer, so if you pay higher rate or additional rate tax it can be a misleading comparison. Remember that if you're a basic rate taxpayer, the personal savings allowance means you can earn £1,000 in savings interest per tax year before tax is deducted (if you're a higher rate taxpayer the amount is £500, and if you're a additional rate taxpayer you don't get a savings allowance at all).

In order to find out what your personal net rate of interest is, you'd need to deduct your tax rate (basic rate at 20%, higher rate at 40% and additional rate at 45%) from the gross rate.

For example, if the gross rate offered by a savings account is 3.00% and you're a higher rate taxpayer, you would do the following calculation:

3 – 40% = 1.80%

Using your own "net rate" is also a good way to compare a non-ISA savings account against the gross rate on a cash ISA.

What Next?

Find the best savings rates for you - Compare savings accounts

Guide: How are my savings taxed?

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Related Articles

How to find lost premium bonds

Premium bonds are a savings vehicle provided by National Savings and Investments (NS&I). They don’t earn interest like other savings accounts but are instead entered into a monthly prize draw.

Sharia’a compliant savings accounts

Islamic savings accounts offer a Sharia’a-compliant way of saving for Muslims living in the UK, as well as an ethical alternative for people of all faiths.

How to save whilst studying

Squirreling money away in a savings account may not be high on your list of priorities when studying at college or university.
Save on Mortgages
Call our experts now to see how much you could save.
0800 193 6644 Lines open 8am to 8pm Monday to Friday
Phone lines are manned by Premier Financial Group Ltd who are authorised and regulated by the Financial Conduct Authority.