The Personal Savings Allowance Explained

How much savings interest can I earn tax-free?

In 2026/27, most UK taxpayers can earn a set amount of savings interest each year without paying tax on it — this is your Personal Savings Allowance (PSA). Basic-rate taxpayers get £1,000; higher-rate taxpayers get £500; additional-rate taxpayers get nothing.

The PSA applies only to interest on money outside an ISA. Cash ISA interest is always tax-free and does not use up your PSA. Add up interest from current accounts, easy-access savings, fixed bonds, regular savers and children's accounts held in your name — if the total exceeds your allowance, the excess is taxed at your marginal income tax rate.

What is the Personal Savings Allowance?

The PSA was introduced in 2016 so most savers would not need to fill in a tax return for modest savings interest. Before that, banks deducted tax at source unless you registered for gross interest.

Today banks pay interest without deducting tax. HMRC works out whether you owe anything using information banks report and your other income. The PSA is a simple annual limit — not a separate account or product you need to open.

Which accounts count towards the PSA?

Any taxable savings interest counts — including easy-access accounts, fixed-rate bonds, regular savers, notice accounts and interest on some current accounts. It also includes interest from peer-to-peer lending and certain government savings products outside an ISA wrapper.

• Counts: non-ISA savings, current-account credit interest, joint accounts (split per owner).
• Does not count: Cash ISA and Stocks & Shares ISA interest or gains within the wrapper.
• Does not count: Premium Bond prizes — they are tax-free prizes, not interest.
• Joint accounts: each owner is usually treated as receiving half the interest for PSA purposes.

How much can I save before paying tax?

Divide your PSA by your interest rate to estimate the balance that uses it up. At 4% AER, a basic-rate taxpayer's £1,000 PSA is exhausted at about £25,000 of savings (£1,000 ÷ 0.04). A higher-rate taxpayer's £500 PSA is used up at about £12,500 at the same rate.

Rates change and you may hold accounts at different AERs, so add up the actual interest you expect across all non-ISA accounts rather than relying on a single balance figure.

The starting rate for savings — extra help for low earners

On top of the PSA, the starting rate for savings can shield up to £5,000 of interest at 0% tax. It is designed for people whose wages or pension are low but who have larger savings.

The £5,000 starting rate is reduced by £1 for every £1 of 'other income' (such as salary) above your £12,570 Personal Allowance. If your salary is £17,570 or more, the starting rate is usually zero. If you earn less than £12,570, you can have the full £5,000 starting rate plus your PSA.

Worked examples: will I pay tax on my savings?

Example 1 — basic-rate employee: £35,000 salary and £30,000 in a 4% easy-access account. Gross interest ≈ £1,200. PSA = £1,000, so £200 is taxable at 20% ≈ £40 tax for the year. Starting rate does not apply because salary is well above the Personal Allowance.

Example 2 — higher-rate employee: £55,000 salary and £15,000 at 4.5%. Gross interest ≈ £675. PSA = £500, so £175 is taxable at 40% ≈ £70 tax. A pay rise that pushes you from basic to higher rate can halve your PSA overnight.

Example 3 — low earner: £10,000 part-time salary and £40,000 savings at 3%. Gross interest ≈ £1,200. Other income is below the Personal Allowance, so the full £5,000 starting rate applies first — all £1,200 is covered at 0%, with PSA unused.

How HMRC collects tax on savings interest

Banks and building societies tell HMRC how much interest they paid you each tax year. If you are employed or receive a pension, HMRC usually adjusts your tax code so extra tax is taken through PAYE — your take-home pay drops without a separate bill.

That is why people discover a savings tax problem only when their payslip changes. If you complete Self Assessment — for example because you are self-employed — you declare savings interest on your return instead.

Our Savings Interest Tax Code Calculator estimates whether your interest is likely to exceed your PSA and trigger a tax code change.

PSA vs ISAs — which should you use?

If your non-ISA interest stays within your PSA, a competitive easy-access account may be all you need. Once you expect to exceed it — or if you are an additional-rate taxpayer — sheltering interest in a Cash ISA is usually the simplest fix.

ISAs and the PSA work together: ISA interest is always tax-free and never counts towards the PSA, so you can use both. A couple can each hold ISAs and each use their own PSA on non-ISA savings.

Our Cash ISA vs Savings Account guide compares the two in detail. For the 2027 savings-tax rate rises and why more savers are being caught, see Will I Pay Tax on My Savings Interest in 2026/27?

What if my interest pushes me into a higher tax band?

Savings interest counts as income when HMRC decides your tax band for the PSA. A basic-rate taxpayer whose interest pushes total income above £50,270 may only get the £500 higher-rate PSA on the interest above the threshold — and pay 40% on the taxable slice.

This 'band stretch' effect is one reason large savers favour ISAs: they keep interest out of the income calculation entirely.

Check your savings interest and PSA

Use our Savings Interest Calculator to project gross interest on a balance at a given AER. Then use the Savings Interest Tax Code Calculator with your salary and savings to see how much of that interest is covered by the PSA and starting rate, and whether tax is likely to be collected via PAYE.

For sheltering future interest, the ISA Allowance Calculator shows how much of your £20,000 annual ISA limit you have left this tax year.