Personal savings allowance
Earn up to £1,000 savings interest tax-free
The personal savings allowance (PSA) lets most people earn up to £1,000 in interest without paying tax on it. At current savings rates, you'd need to have just over £20,000 in the top easy-access savings account to exceed the allowance. This guide has full details on the PSA and how it works...
What is the personal savings allowance and what does it mean for my savings?
Your personal savings allowance (PSA) is a tax-free allowance that lets you earn interest on your savings without paying tax on that interest. The allowance you get depends on what rate of income tax you pay:
- Basic-rate (20%) taxpayers: can earn £1,000 in savings interest per year with no tax
- Higher-rate (40%) taxpayers: can earn £500 in savings interest per year with no tax
- Additional-rate (45%) taxpayers: £0 – they do not get an allowance.
If you're a non-taxpayer – that is you have less than £12,570 income per year, you may be able to earn as much as £18,570 in savings interest tax-free. But it depends on how much income you do have, whether from a pension, or from working. Our Tax-free savings guide has full information.
What counts as savings interest under the personal savings allowance?
The PSA covers any interest you earn from bank accounts, savings accounts, credit union accounts, building societies, corporate bonds, government bonds and gilts. It also includes interest earned on other currencies (for example, US dollars, euros) held in UK-based savings accounts and expected profit from sharia accounts.
Peer-to-peer lending interest is also covered, but dividend income from shares or funds is not included in the allowance (you have a separate allowance for that). The PSA does include interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts and most types of purchased life annuity payments.
Note for Scottish residents: You pay different rates of income tax, but for the purposes of the personal savings allowance the English tax bands are used – so for 2023/24, most will have the full £1,000 PSA if they earn up to £50,270.
How much do I need in savings before my interest is taxed?
This depends on both the interest rate and whether you're a basic, higher or additional-rate taxpayer. At current rates, you'd need savings between roughly £10,000 and £22,000. We've looked at how much you'd need in a few different savings accounts to hit the PSA thresholds (assuming current best-buy rates):
How much can I save before interest is taxed?
Basic-rate taxpayer | Higher-rate taxpayer | Additional-rate taxpayer | |
---|---|---|---|
Top easy access 5.2% AER | £19,230 | £9,615 | N/A |
Top 1r fix 6.2% AER | £16,130 | £8,065 | N/A |
Rates correct as of 5 September 2023. Assumes constant balance.
It's worth noting that for the fixed-rate example above, we've assumed you take your interest monthly or annually, so you can withdraw it within a tax-year. The thresholds are lower if you take interest at maturity. This is important as...
You're taxed on savings interest in the tax year you can access it
These means if you opt for a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity, then all that interest is counted towards the final year's PSA. The same is true if monthly or annual interest is paid by the bank into the fixed account, so you're unable to withdraw it until the date the fix matures.
For example, save £7,000 in a five-year fix at 4.95% and you'd earn £347 annually in interest, easily within the PSA. Yet take that interest at maturity and it's £1,913. You benefit from compound interest by leaving it in the account (so earn £180 more overall) but you'd now exceed your PSA for that tax-year so would be liable to pay tax (around £183 for basic-rate and £565 for higher-rate).
Quick questions
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So, does this mean I don't need a cash ISA?
While it's true to say that interest that's already tax-free – so ISA interest and Premium Bond 'winnings' – isn't included in the interest counted towards your PSA, it doesn't necessarily mean that these products are defunct. Here's Martin's view...

The main question now is 'what pays the highest rate?'
For most people the personal savings allowance will mean all of their savings are tax-free, and therefore when choosing a product, the basic question is simply: "What pays the highest rate?"
And for most people with under around £20,000 of total savings, cash ISAs won't be a winner. In fact, ISAs can generally be beaten for most people by top easy-access savings.
It's rare, but occasionally the top easy-access cash ISA pays more than the top easy-access savings; in which case even if there's no tax gain, if the rate is higher, use the ISA. Plus the top fixed ISAs allow you to access your cash early for a small interest penalty while the top fixed savings don't – so there can be other reasons ISAs win; for nerdy detail on this, see Is the cash ISA dead?.
For bigger savers and higher earners a cash ISA is still a winner
The most important thing to note is that cash ISA interest doesn't count towards your PSA, so you can earn it tax-free – and still have your full £1,000 (or £500) PSA allowance. Therefore for top-rate taxpayers or bigger savers who've used up the PSA, there are big tax advantages of saving in a cash ISA.
- Basic-rate taxpayers over the PSA limit. For every £100 interest you earn in normal savings you only get £80, whereas in an ISA you get all the £100. Therefore the normal savings rate would have to be 25% higher for it to beat a cash ISA.
- Higher-rate taxpayers over the PSA limit. For every £100 interest you earn in normal savings you only get £60, whereas in an ISA you get all the £100. Therefore the normal savings rate would have to be 66% higher for it to beat a cash ISA.
- Top-rate taxpayers. For every £100 interest you earn in normal savings you only get £55, whereas in an ISA you get all the £100. Therefore the normal savings rate would have to be 82% higher for it to beat a cash ISA.
So cash ISAs can be winners.
Also it's worth remembering that while £1,000 a year interest seems a lot, but when interest rates rise, more people will need to pay tax. So saving into an ISA now could protect you from future tax.
I'm one of the people who does owe tax – how do I pay it?
Your bank or building society will pay all savings interest due to you gross (without tax taken off the amount).
HM Revenue & Customs (HMRC) says any tax owing will be paid through changes to your tax code, if you're an employee or have a pension. So you'll get a lower personal allowance for income tax to pay any tax due on savings interest. HMRC will look at how much you got in saving interest last year and base your tax code next year on that if you went over your personal savings allowance.
Those who self-assess will continue to pay through that system.

If you've had a tax code change in the past and are now earning less interest than your PSA, you'll need to contact HMRC as it will need to adjust your 2023/24 tax code to be correct.
You can call it on 0300 200 3300 or go online to your personal tax account – go to 'check your income tax' and then 'tell us about a change'.
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