What is the Personal Savings Allowance?

Personal Savings Allowance in the UK

For many savers, understanding the Personal Savings Allowance (PSA) can help maximise returns and avoid unexpected tax bills. While banks and building societies now pay savings interest without automatically deducting tax, that does not mean all savings interest is tax-free.

Your annual tax payable on your interest earnings depends on: 

• how much interest you earn
• your other taxable income
• your tax-free allowances

After 5 April each year, your bank or building society will tell HM Revenue and Customs (HMRC) about any interest they paid to you for the previous year. 

What is the Personal Savings Allowance?

The Personal Savings Allowance is an amount of savings interest you can earn each tax year before paying income tax on it.

The allowance depends on your income tax band:

• Basic-rate taxpayers can earn up to £1,000 of savings interest tax-free each tax year.
• Higher-rate taxpayers can earn up to £500 of savings interest tax-free.
• Additional-rate taxpayers do not receive a Personal Savings Allowance.

This information is correct as of July 2026, and taken directly from the HMRC information found here: Tax on savings interest: Overview - GOV.UK 

Savings interest from bank accounts, fixed-rate bonds and many other cash savings products generally counts towards the allowance.

Check what to do if you have to pay tax on it.

Why does the Personal Savings Allowance matter?

Over the past few years, higher interest rates have increased the amount many savers earn on their cash deposits. As a result, more people are finding that their savings interest could exceed their Personal Savings Allowance.

For example, a saver with a substantial balance in a fixed-rate account may generate enough interest to move beyond their allowance, particularly if they are a higher-rate taxpayer.

Understanding how the PSA works can help savers plan ahead and avoid surprises when HM Revenue & Customs (HMRC) reviews their income.

How is savings interest taxed?

If your savings interest exceeds your Personal Savings Allowance, any amount above the threshold may be subject to income tax at your marginal rate.

In many cases, HMRC receives information directly from savings providers and adjusts a taxpayer's tax code if additional tax is due. However, circumstances vary, and savers should ensure they understand their own position.

It is important to remember that your tax status can change if your income changes during the year. A promotion, pension income or other earnings could affect which PSA applies to you.

What can savers do?

A few simple steps can help you stay on top of your savings tax position:

• Seek the advice of a tax professional to calculate much interest your savings may generate during the tax year.
• Review whether your tax band has changed.
• They will advise you whether to spread savings across different products where appropriate.
• Keep records of interest earned from all savings accounts.

For many savers, competitive fixed-rate savings products can still offer attractive returns even if some interest becomes taxable.

Frequently asked questions

Do I need to apply for the Personal Savings Allowance?

No. The allowance applies automatically if you are eligible.

Does the allowance apply per account?

No. The allowance covers your total savings interest across eligible accounts during the tax year.

What if I have multiple savings accounts?

Interest from all eligible savings accounts is added together when calculating whether you have exceeded your allowance.

Is savings interest paid with tax already deducted?

No. Most UK savings providers pay interest gross, meaning without deducting tax.

The takeaway

The Personal Savings Allowance remains an important tax benefit for UK savers. However, as savings rates and account balances increase, it is becoming more important to understand how much interest you may earn and whether any tax could be due.

Review your current savings arrangements and projected interest earnings to understand how your Personal Savings Allowance could affect your returns this tax year.

Keeping track of your savings interest and understanding your tax band can help you make informed decisions with confidence. At Birmingham Bank, we believe saving should be straightforward, with clear information that helps you manage your money effectively while working towards your financial goals. Our savings products are designed to make banking easier, not harder, supported by useful technology and real people when you need them.

Any information contained in this article should not be construed as financial advice or tax advice. We recommend that all of our customers seek independent advice from suitable professionals before making any decisions about their money.

END