How the personal savings allowance works

What is the personal savings allowance?

The personal savings allowance (PSA) is the amount of interest you can earn on your savings each tax year without paying tax. The allowance you get depends on which tax bracket you fall into as a basic rate, higher rate or additional rate taxpayer. 

It’s separate from your ISA allowance, which allows you to save or invest £20,000 every tax year without paying tax. 

How much is the personal savings allowance?

You can earn up to £1,000 in interest on your savings, tax-free! This can be a nice bump – and many people won’t go over this £1,000 annual allowance. For example, you’d need to have saved £20,000 in an account paying 5% interest to hit the £1,000 limit.

The £1,000 personal savings allowance applies to people who are in the basic tax rate band, but if you’re in the higher tax rate band, it falls to £500. Once you’re in the additional tax rate band, you lose your personal savings allowance altogether. So, it’s really important to check which band you fall into and keep an eye on your savings interest.

Here’s a quick breakdown.

*If you live in Scotland, your income tax rate band will be different, but the same personal tax allowance limits apply. 

How are savings taxed?

You’ll pay tax on any interest over your allowance at your usual rate of income tax. If you’re employed or have a pension, HMRC will change your tax code so you’ll pay tax automatically. To do this, they look at the amount you received in interest from savings last tax year. If you self-assess, you’ll need to declare the amount of savings interest you’ve earned on your usual Self Assessment tax return.

How to make the most of your savings

Your personal savings allowance is there to help you build your savings, so make the most of it! But, if you’re approaching the limit – perhaps because you’re a high earner or you’re saving large amounts in cash – you can still put your annual ISA allowance to work.

With a Cash ISA, you can save up to £20,000 every tax year, and your interest is tax-free! So, it’s a great way to continue growing your money in a tax-efficient way. If you’re already saving with a Cash ISA – you’re on the right track!

You’ll also earn 5.17%* AER (variable) on your savings! Head in-app to open a Cash ISA.

Plus, with our Move Money feature in-app, you can easily transfer money from a regular access savings account to our Cash ISA. Just head in-app to Settings > Move money between accounts.

*New customer rate as of 05/11/2024. 5.17% AER (variable) includes a bonus rate of 0.47% for the first 12 months. A lower rate of 0.75% AER (variable) applies if account conditions aren’t met. Interest is accrued daily and paid into your account yearly on the date you opened your Cash ISA. The rate is variable, and we’ll inform you if it changes. Tax treatment depends on individual circumstances and may be subject to change in the future.