Personal Savings Allowance: how savings interest is taxed

How UK savings interest is taxed in 2026/27: the Personal Savings Allowance, starting rate for savings, ISAs, Premium Bonds and the April 2027 changes.

Last checked: 14 October 2026. We check this guide regularly against official sources.

Is your rainy day pot growing nicely? Most people in the UK pay no tax on their savings interest at all. This guide explains the allowances for the 2026/27 tax year (6 April 2026 to 5 April 2027), how tax-free accounts fit in, and what changes from April 2027.

This is general information, not financial advice. How you’re taxed depends on your own circumstances, and tax rules can change.

Three allowances that can cover savings interest

HMRC can set three allowances against your savings interest each tax year:

Personal Allowance: the standard amount is £12,570. If your wages, pension or other income don’t use it all up, the rest can cover interest.
Starting rate for savings: up to £5,000 of interest, if your other income is low.
Personal Savings Allowance (PSA): up to £1,000 of interest, depending on your tax band.

You can get the starting rate for savings and the PSA in the same year.

The starting rate for savings

If your other taxable income (not counting savings interest or dividends) is less than £17,570, you can get the starting rate for savings. That lets you earn up to £5,000 of interest tax-free.

It shrinks as your other income rises. Every £1 of other income above your Personal Allowance reduces it by £1.

Example: your wages are £15,000. That’s £2,430 above the £12,570 Personal Allowance, so your starting rate for savings is £5,000 − £2,430 = £2,570.

The Personal Savings Allowance

Income Tax band	Personal Savings Allowance
Basic rate	£1,000
Higher rate	£500
Additional rate	£0

To work out your band, add your savings interest to your other income. Interest above your allowances is taxed at your savings rate, which for 2026/27 is 20% (basic), 40% (higher) or 45% (additional).

A few points worth knowing:

The PSA is per person, per tax year, not per account. HMRC adds up interest from all your accounts.
For joint accounts, HMRC splits the interest equally between the holders.
After 5 April, banks and building societies tell HMRC how much interest they paid you. If you’re employed or get a pension and tax is due, HMRC usually sends a tax calculation and collects the tax through your tax code. If you’re in Self Assessment, or your interest is more than £10,000, you report it on a tax return.

Tax-free savings: ISAs and Premium Bonds

Cash ISAs. Interest earned in an ISA is not taxed and doesn’t use up your PSA. In 2026/27 you can pay in up to £20,000 in total across all your ISAs.

Premium Bonds. NS&I Premium Bonds don’t pay interest. Instead, each bond goes into a monthly prize draw, and any prizes are free from UK Income Tax and Capital Gains Tax. As of 14 Oct 2026, NS&I’s prize fund rate is 4.35% (variable). That’s an average across all bonds: you could win more, less or nothing.

When fixed-term interest is taxed

Interest is taxed in the tax year it “arises”, which HMRC says is when it’s paid to you or credited to an account you’re free to draw on.

That matters for fixed-rate bonds:

If a bond credits interest each year and you can take it out (even with a penalty), it’s taxable each year as it’s credited.
If you can’t get at the interest until the bond matures, it’s all taxable in the tax year it’s paid.

So a two-year bond that pays all its interest at the end could put two years’ interest into one tax year. Check how your provider pays and reports interest, and compare it with your statements.

Worked example: the tax-equivalent rate

The tax-equivalent rate is the rate a taxable account would need to pay to leave you with the same amount as a tax-free one, once your allowances are used up.

Formula: tax-equivalent rate = tax-free rate ÷ (1 − your savings tax rate)

Example numbers, for illustration only. Alex is a higher-rate taxpayer in 2026/27 and has already used their £500 PSA on other accounts.

A cash ISA paying 4.50% AER: Alex keeps all 4.50%.
To match that, a taxable account would need 4.50 ÷ (1 − 0.40) = 7.50%.
A taxable account paying 5.00% leaves Alex 5.00 × 0.60 = 3.00% after tax.

If the PSA isn’t used up yet: £20,000 at 5.00% earns £1,000. The first £500 is tax-free, and the other £500 is taxed at 40% (£200). Alex keeps £800, which works out at 4.00% after tax.

The same sum on a Premium Bonds prize fund rate of 4.35% gives 4.35 ÷ 0.60 = 7.25%. That figure is an illustration only, because prizes aren’t guaranteed.

Changes due from April 2027

These are announced or legislated but not yet in force (as of 14 Oct 2026):

Higher savings tax rates from 6 April 2027: 22% (basic), 42% (higher) and 47% (additional) for 2027/28. Finance Act 2026 sets these rates and applies them across the UK. With these rates, the 4.50% example above becomes 4.50 ÷ 0.58 = 7.76%.
Lower cash ISA limit from 6 April 2027: the government plans to cut the annual cash ISA limit to £12,000 for people under 65. The overall ISA limit stays at £20,000, and people aged 65 or over can still put £20,000 a year in a cash ISA. HMRC published details on 17 September 2026, and the ISA rules are to be amended before the change takes effect.
Frozen thresholds: Finance Act 2026 keeps the £5,000 starting rate limit and the £12,570 Personal Allowance frozen up to and including 2030/31.

We found no announced change to the PSA amounts.

Suggested internal links: Cash ISA rates (/isa) · Easy access rates (/savings/easy-access) · Fixed rate bonds (/savings/fixed) · Premium Bonds (/guides/premium-bonds-explained) · Regular savers (/savings/regular-saver) · What should I do with my savings? (/what-should-i-do-with-my-savings) · Guide: FSCS protection (/guides/is-my-money-safe)

Last reviewed 14 Oct 2026. Figures are for the 2026/27 tax year.

Sources (all accessed 14 Oct 2026)

GOV.UK, Tax on savings interest: overview, how much is tax free, and how you pay tax: https://www.gov.uk/apply-tax-free-interest-on-savings
GOV.UK, Income Tax rates and Personal Allowances: https://www.gov.uk/income-tax-rates
GOV.UK, Individual Savings Accounts: https://www.gov.uk/individual-savings-accounts
HMRC, Cash ISA limit reduction (tax information and impact note, published 17 Sep 2026): https://www.gov.uk/government/publications/reduction-in-the-cash-individual-savings-account-isa-limit/cash-individual-savings-account-isa-limit-reduction
HMRC, Income Tax: changes to tax rates for property, savings and dividend income (published 27 Nov 2025): https://www.gov.uk/government/publications/income-tax-changes-to-tax-rates-for-property-savings-and-dividend-income/income-tax-changes-to-tax-rates-for-property-savings-and-dividend-income
Finance Act 2026, ss. 3, 5, 9 and 10 (Royal Assent 18 Mar 2026): https://www.legislation.gov.uk/ukpga/2026/11/part/1/crossheading/income-tax-charge-rates-and-allowances/enacted
HMRC Savings and Investment Manual SAIM2440, when interest arises: https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440
NS&I, Premium Bonds: https://www.nsandi.com/products/premium-bonds

Questions

Is the Personal Savings Allowance per account?

No. It's per person, per tax year. HMRC adds together the interest from all your non-ISA accounts.

Does cash ISA interest count towards my PSA?

No. ISA interest is tax-free and is separate from your PSA.

Are Premium Bonds prizes taxable?

No. NS&I says prizes are free from UK Income Tax and Capital Gains Tax.

Do I need to tell HMRC about my savings interest?

Usually not. Banks report interest to HMRC after the tax year ends. If you're in Self Assessment, or your interest is over £10,000, you report it on a tax return.

What happens to the cash ISA allowance in April 2027?

The government plans to cut it to £12,000 a year for under-65s from 6 April 2027, within the £20,000 overall limit. Until then, the 2026/27 limit of £20,000 applies.