Alanna Edmundson, Senior Product and Pricing Leader
17 March 2026
Right now, this question has never felt more important.
If you've taken out a savings product recently, you may have noticed interest rates are lower than in recent years. This might make it harder to achieve your goal – especially if you're paying too much tax on your savings.
Don’t panic, though.
Because there are steps available to help you reduce the tax you pay on your savings.
How does tax on your savings work?
- To be clear, you don’t get taxed on the money you put into your savings account. Tax is taken from the interest you earn on your savings.
- Through a Personal Savings Allowance, you could earn up to a certain amount of tax-free interest on your savings each year (6 April to 5 April). Find out how by using our Personal Savings Allowance Calculator.
- If you earn more interest on your savings than your Personal Savings Allowance, you’ll pay tax.
- The amount of tax you pay depends on the income you earn – and the tax band you’re in.
What a pay rise could mean for your savings
Your tax band plays a big role in the amount of tax you pay on your savings.
Firstly, the higher your band is, the more you’re taxed. (Basic rate taxpayers pay 20% in tax, higher rate taxpayers will pay 40%, and for additional rate taxpayers it’s 45%.)
And secondly, moving from a basic rate tax band to higher rate tax band means your Personal Savings Allowance will halve to £500. So, through your allowance, you’ll be unable to protect as much of your savings from tax.
How much do you need in savings before paying tax?
An example, based on an easy access account with a rate of 5%, here’s how much you’d need in savings before interest is taxed.
| Tax Band | Balance before interest is taxed |
|---|---|
| Basic rate | £20,001 |
| Higher rate | £10,001 |
| Additional | Tax is paid on all savings |
How tax could eat into your savings pot
To give you an idea, let’s say you have a total pot of £30,000 in savings in a 1 year fixed rate bond with an interest rate of 5.00%. In 12 months, you’d earn £1,500 in interest.
How much tax you pay depends on your Personal Savings Allowance (PSA) and your income tax band:
- Basic rate taxpayer (20%):
- PSA: £1,000
- Taxable interest: £500
- Tax due: £100
- Higher rate taxpayer (40%):
- PSA: £500
- Taxable interest: £1,000
- Tax due: £400
- Additional rate taxpayer (45%):
- PSA: £0
- Taxable interest: £1,500
- Tax due: £675
Over time, paying this level of tax can significantly reduce the growth of your savings.
While the Personal Savings Allowance can help, it may not be enough on its own.
This is where an ISA could really help you
The great thing with an ISA is that, unlike the Personal Savings Allowance, it doesn’t matter how much you earn.
- Every UK resident is entitled to an ISA allowance.
- Each tax year (April 6 to April 5), you can typically put up to £20,000 into an ISA depending on your age.
- The interest you earn is free from income tax and capital gains tax.
From April 2027, Cash ISA rules will change. If you're under 65, the amount you can save each year will go down to £12,000.
Different types of ISAs
There are different types of ISAs available. Below are some of the ISAs we offer:
- Easy access Cash ISA – if you want flexibility to access your money regularly. (May be ideal for an emergency fund.)
- Fixed rate Cash ISA – if you don’t need to access your money for one to five years. (May be ideal for short-term goals.)
- Stocks and shares ISA – if you don’t need to access your money for at least five years. And you’re willing to accept some risk to your capital. (May be ideal for long-term goals.)
Right now, you can split your allowance of £20,000 between the different types of ISAs.
More flexibility and control
- You can have different products under one ISA (in the same tax year).
- So, if you have a Cash ISA, you’ll be able to spread your £20,000 allowance across a mix of easy access Cash ISA and fixed rate Cash ISA products.
- Being able to use other providers and products at the same time means you can switch to competitive deals when they’re available.
This is such an exciting time to save your money. But with more savers impacted by tax, we’re here to help you get the most out of your savings.
Why not browse our range of ISA options.
Or you can speak to one of our friendly ISA specialists – to help you make informed decisions and grow your savings in a tax-efficient way.
To get started, you can either:
You could benefit from a free and quick chat today.
Stock market-based investments are not like Building Society savings accounts. The value of your investments and any income can go down or up and you may get back less than you invest. Tax treatment depends on your personal circumstances. Tax rules may change in the future.