Personal Savings Allowance
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) is the amount of interest (money a bank pays you for keeping savings with them) you can earn each year before you pay tax. It was introduced in 2016 and applies to interest from bank accounts, building societies, and some other savings.
How much is the allowance?
- Basic rate taxpayers (20%). £1,000 per year
- Higher rate taxpayers (40%). £500 per year
- Additional rate taxpayers (45%). £0 (no allowance)
Your tax band is based on your total income, not just your savings.
What counts towards it?
Interest from most savings accounts, including easy access, fixed rate, and regular saver accounts.
Interest from Cash ISAs doesn’t count. It’s already tax-free and sits outside your PSA.
What happens if you go over?
You pay tax on the interest above your allowance at your income tax rate (20%, 40%, or 45%). HMRC usually collects this by adjusting your tax code. You won’t get a separate bill.
Do you need a Cash ISA if you have a PSA?
Depends how much you’re saving. If your interest is under £1,000 (or £500), you won’t pay tax anyway. But Cash ISA interest stays tax-free forever. Useful if your savings grow or tax rules change.
Key points about the Personal Savings Allowance
- £1,000 tax-free for basic rate taxpayers
- £500 for higher rate taxpayers
- £0 for additional rate taxpayers
- Cash ISA interest doesn’t count. It’s separate
More information
Scrimpr links to official sources so you can verify what you’ve learned.