How to protect your savings interest from tax – ISAs, personal allowances and more

As more people get dragged into paying tax on savings interest, Paul Lewis has advice on how to protect your pennies.

Small green shoot breaking through from a pile of pound coins.

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Published: June 4, 2026 at 5:18 PM

The interest paid on savings continues to edge up. At the moment you can get more than 4.5% interest,
fixed for a year, on a savings account – and nearly as much on easy-access accounts, too. But the amount of interest you can earn tax-free has not been raised for ten years. So more and more people will find they are charged tax on their interest.

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HMRC figures show that the tax paid on savings interest by basic rate taxpayers was nearly half a billion pounds in 2025/26. That’s almost three times the amount they paid in 2022. So it is more important than ever to protect as much of your interest as you can from tax.

Since 2015 there has been a personal savings allowance of £1,000 for basic-rate taxpayers. Which means the first £1,000 of interest a year is tax-free – though the allowance is just £500 if you pay higher-rate tax, while people paying the top rate of 45% get no savings allowance at all. You only need around £21,000 in a top-paying account to reach that basic rate limit.

However, there is also a separate tax-free savings allowance if your other income is below £17,570. Any savings interest on top of your other income up to that total will be free of income tax, and the £1,000 allowance applies on top of that.

The easiest way to avoid income tax on your savings is to put them into a cash ISA. You can put up to £20,000 every tax year into one, though that limit will fall to £12,000 per year from April 2027 for people under the age of 65.

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If you have used up your ISA allowance and have some savings where the interest is taxed, you do not normally have to tell HMRC. Banks and building societies have your National Insurance number and inform HMRC of interest earned.

If you have other income, such as earnings or a pension, any tax due on savings interest will be collected by reducing your tax code on that income so you pay more tax. If you have no other taxed income you will be sent a “simple assessment” form by HMRC, showing what to pay and how.

You can find best interest rates on savings by searching “best buy cash theprivateoffice” online.

QUESTIONS?

Send any questions to Paul.Lewis@radiotimes.com. Paul cannot answer you personally, but will reflect them in his column.

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