This blog could save you hundreds in tax

Nearly 3 million Brits will pay tax on their savings this year — that’s a million more than last year. Why is this, and will you be one of them?

Why more people are paying tax on their savings 

As I mentioned in my earlier blog about how to maximise your savings with ISAs, each year, UK taxpayers are given a Personal Savings Allowance (PSA). This is the amount of interest you can earn on your savings before you need to start paying tax on it. Your PSA is determined by your tax bracket.

Not so long ago, you’d be lucky to find a savings account that paid 0.5% in interest. This meant that basic and higher rate taxpayers would need to have a hefty amount stashed away in savings — £200,000 for basic rate taxpayers and £100,000 for higher rate taxpayers, to be precise — before they’d exceed their PSA and have to start paying tax on the interest.

Today, however, it’s possible to earn upwards of 5% interest on your savings. This means you’ll need far less in your savings account — £20,000 for basic rate taxpayers and £10,000 for higher rate taxpayers — to breach your PSA and start paying tax on your interest.

So, how can you minimise the amount of tax you pay?  

The good news is that, in addition to your PSA, you’re given a £20,000 allowance to save into ISAs (Individual Savings Accounts) each tax year — no matter your tax bracket.  

ISAs let you earn interest (or investment returns — depending on the type of ISA you choose) on your savings, without paying any income or capital gains tax on the growth. This means, if you’re at risk of breaching your PSA, it's worth opening an ISA. Don’t worry, you won’t be alone, as 2023 was a record-breaking year for cash ISAs since their introduction in 1999!  

What ISA should I choose? 

If you’re not sure where to start when it comes to ISAs — let me introduce you to Zopa. Zopa offer a flexible, easy access cash ISA, which you can open in their app in just a few taps.

The flexible aspect means you can deposit and withdraw money within the same tax year without affecting your ISA allowance — which is great for any unplanned expenses. Plus, Zopa’s ISA let’s you mix and match between several different fixed term and easy access ISA pots to create a combination that suits you and your savings goals.   

If that wasn’t enough, Zopa are currently offering a 1-year fixed bonus rate of 0.5% AER/gross to new Smart ISA customers, giving you a total interest rate of 5.08% AER!†

If you’re still unsure whether Zopa’s right for you, maybe the fact that they were recently crowned Best Savings App at the 2024 Moneynet awards, have over £4 billion in savings, allow you to save up to £250,000 with them and offer FSCS protection up to £85,000 will convince you?


The views expressed are those of the author. This blog is intended for information only and doesn’t constitute financial advice. You should always do your own research to ensure anything you apply for is suitable for your specific circumstances. 

Tax treatment depends on individual circumstances and may change. Interest rates are correct at the type of writing by may go up or down in the future. If you choose to invest, you may get back less than you put in.   

†Smart Saver account and minimum £1 required. ISA Access pots 5.08% AER (4.96% gross) variable, payable monthly. This includes a 1-year fixed bonus rate of 0.5% AER/gross fixed, which starts from the date you open a Smart ISA.  

AER stands for 'annual equivalent rate'. We pay you interest on a monthly basis, but AER shows you the rate you’d get if this monthly interest was compounded and paid once a year instead. We provide an AER to make it easier for you to compare our rates with other providers.  

Gross is the rate of interest we apply to your money, before any tax is taken off.  

This blog was updated on 17th May 2024. 

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