Tax on savings interest has risen sharply. In June 2024, government figures reported by AJ Bell showed savers were forecast to pay £10.4 billion in tax on interest in 2024/25, up from £1.4 billion in 2021/22.

Depending on your income, some or all of your savings interest may be tax-free under three allowances:

• Personal Allowance: if you haven’t used all of your £12,570 Personal Allowance on other income, such as wages or a pension, the unused part can cover savings interest.

• Starting rate for savings: up to £5,000 of interest can be tax-free if your other income is below £17,570. Every £1 of other income above your Personal Allowance reduces it by £1.

• Personal Savings Allowance: up to £1,000 of interest is tax-free for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate.

Interest above your allowances is taxed at savings tax rates. These are currently the same as income tax rates (20%, 40% or 45%) but will rise to 22%, 42% and 47% from 6 April 2027. See GOV.UK’s guide to tax on savings interest for how this works.

How much you can save before paying tax depends on your interest rate. For example, at 5%, a basic-rate taxpayer could hold about £20,000 before their interest went over the £1,000 allowance, and a higher-rate taxpayer about £10,000. At 0.5%, a basic-rate taxpayer could hold about £200,000.

Savings rates change often. For current rates, see our savings accounts guide.

Three ways to reduce tax on savings

Common ways to reduce tax on savings interest include:

• Buying Premium Bonds

• Investing in ISAs

• Topping up your pension

Read the full details on how to avoid paying tax on savings, here.

The number of savers caught in the tax net continues to climb. According to HMRC figures obtained by AJ Bell, around 2.64 million people were expected to pay tax on savings income in 2025/26. Hargreaves Lansdown reported in September 2026 that more than 4.5 million are expected to pay in 2026/27.

Income tax thresholds are frozen until April 2031, so as pay rises, more people move into the higher-rate band, which cuts their Personal Savings Allowance from £1,000 to £500. HMRC figures obtained by AJ Bell estimated that 1.15 million basic-rate taxpayers would pay tax on savings interest in 2025/26, up from 494,000 in 2022/23. From 6 April 2027, the tax rates on savings interest will rise to 22% for basic-rate taxpayers, 42% for higher-rate and 47% for additional-rate.

Interest counts towards your Personal Savings Allowance in the tax year you can access it. So a fixed-rate account that only lets you access the interest at the end of the term puts all of that interest into one tax year. Martin Lewis has pointed out that this can be used to move interest into a year when your income, and so your tax rate, will be lower, for example the year after you retire. It can also work the other way, pushing several years' interest into one year and over your allowance. So check when interest is paid and when you can access it before choosing an account.

Read more:

• Savings rates in 2024 and 2026 compared: what’s changed for savers

• Cash ISAs vs Stocks & Shares ISAs: how they compare