Personal Savings Allowance Calculator
Interest on savings is taxable, but most savers pay nothing thanks to the Personal Savings Allowance. Basic rate taxpayers can earn up to £1,000 tax-free; higher rate taxpayers get £500.
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A common misconception is that banks deduct tax before paying interest. Since 2016, banks pay interest gross – you receive the full amount but are responsible for any tax owed. With savings rates now above 4-5%, more people are breaching their allowance.
Understanding your savings tax position helps you decide whether to prioritise ISAs over regular savings. Enter your income and interest earned below to check if you're within your allowance.
Your Savings Details
Annual interest from savings accounts, bonds, etc.
ISA interest is completely tax-free
Personal Savings Allowance (2026/27)
- • Basic rate taxpayers: £1,000
- • Higher rate taxpayers: £500
- • Additional rate taxpayers: £0
Tax on Savings Interest
Within your £1,000 PSA
At 20% (Basic rate)
Calculation Breakdown:
- • Total interest: £2,000.00
- • Your PSA allowance: £1,000.00
- • Allowance used: £1,000.00
- • Interest above PSA: £1,000.00
- • Tax at 20%: £200.00
Tip: Moving £1,000.00 to a Cash ISA would save you £200.00 in tax annually.
Current Rate Context
At a 5% interest rate, you'd need savings of £20,000 to use your full PSA. Higher rates mean more people are now paying tax on savings.
How the Personal Savings Allowance Works by Tax Band
The Personal Savings Allowance (PSA) was introduced in 2016 to let most people earn interest tax-free. The amount depends on your income tax band:
| Tax Band | Income Range | PSA |
|---|---|---|
| Basic rate (20%) | £12,571 – £50,270 | £1,000 |
| Higher rate (40%) | £50,271 – £125,140 | £500 |
| Additional rate (45%) | Over £125,140 | £0 |
Important: Additional rate taxpayers get no PSA at all—every pound of interest is taxed at 45%.
Why Rising Interest Rates Increase Tax Exposure
When the PSA was introduced in 2016, interest rates were near zero. A basic rate taxpayer would have needed over £100,000 in savings to exceed their £1,000 allowance. With rates now around 5%, that threshold has dropped dramatically:
£100,000+
Needed at 1% rates
£33,333
Needed at 3% rates
£20,000
Needed at 5% rates
This means millions more people now need to pay tax on savings interest. HMRC estimates that 2.7 million more taxpayers will exceed their PSA compared to pre-2022 rates.
Action Steps
- • Maximise your ISA allowance (£20,000/year) to shelter interest
- • Consider Premium Bonds for tax-free prizes instead of interest
- • Check if you need to complete a Self Assessment return
The Role of ISAs in Sheltering Interest
Individual Savings Accounts (ISAs) provide a separate tax-free wrapper for your savings. Interest earned in an ISA is completely tax-free and doesn't count towards your PSA.
Cash ISA Benefits
- • All interest is tax-free—no limits
- • Doesn't affect your PSA or tax band
- • £20,000 annual allowance (2026/27). From 6 April 2027, under-65s can put at most £12,000 of it into cash ISAs (the full £20,000 stays available for stocks and shares)
- • Flexible ISAs allow withdrawals and redeposits
ISA Strategy for Higher Earners
If you're a higher rate taxpayer (£500 PSA) or additional rate (£0 PSA), prioritising your Cash ISA can save significant tax:
Example: £50,000 savings at 5% = £2,500 interest/year
- • Higher rate taxpayer: £800 tax saved by using ISA
- • Additional rate: £1,125 tax saved by using ISA
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