Personal Savings Allowance Explained: How Much Interest Can You Earn Tax-Free?
Published 6th November 2026·Updated 6 November 2026
Reviewed by: Reviewed for accuracy November 2026
The Personal Savings Allowance (PSA) lets you earn interest on savings without paying income tax on it. Basic rate taxpayers (20%) get a £1,000 annual allowance. Higher rate taxpayers (40%) get £500. Additional rate taxpayers (45%) get nothing - no PSA. The allowance renews every tax year (6 April to 5 April).
The short answer
Personal Savings Allowance at a glance:
- Basic rate taxpayer (20%): £1,000 of interest tax-free per year.
- Higher rate taxpayer (40%): £500 of interest tax-free per year.
- Additional rate taxpayer (45%): £0 - no allowance.
- ISA interest does not count towards your PSA - ISAs are always tax-free regardless.
- If you earn more interest than your PSA, you pay tax on the excess at your income tax rate.
- You do not need to do anything to claim the PSA - it is applied automatically.
Who qualifies for the Personal Savings Allowance?
Your PSA depends on your income tax band for the tax year. Most people are basic rate taxpayers, which means they earn between £12,570 (the Personal Allowance) and £50,270 per year. If your total income is in this range, you get the full £1,000 PSA.
If your income exceeds £50,270, you are a higher rate taxpayer and your PSA is £500. If your income is above £125,140 (additional rate), you have no PSA at all and all savings interest is taxable.
Your PSA applies to the interest earned in a given tax year, not the balance in your account. £10,000 in a 4% account earns £400 interest - well within most people's £1,000 allowance. You would need around £25,000 in a 4% account to reach the £1,000 limit if you are a basic rate taxpayer.
What types of savings interest count towards the PSA?
The PSA covers most types of savings interest, including:
- Savings accounts (banks, building societies)
- Current accounts that pay interest
- Credit union accounts
- NS&I accounts (Premium Bonds prizes are exempt - they are not interest)
- Peer-to-peer lending platforms
- Some corporate bonds
What does not count towards the PSA:
- ISA interest (tax-free regardless, never counted against your PSA)
- NS&I Premium Bond prizes (these are prize winnings, not interest - tax-free and outside the PSA)
- Dividends (covered by the separate Dividend Allowance)
PSA vs ISA: which is better?
The PSA and ISA are complementary, not competing. For most people, the question is where to hold savings that exceed the PSA limit.
If your savings interest will be below your PSA for the year, a standard savings account often pays a slightly higher interest rate than a cash ISA, so it can be the better choice for small-to-medium savings pots. If your interest is likely to exceed your PSA - for example, you have over £25,000 saved at 4% - a cash ISA protects that interest entirely from tax, without it counting towards any allowance.
| Savings pot | Likely best account |
|---|---|
| Under £10,000 | Standard savings account (interest below PSA) |
| £10,000-£25,000 | Depends on rates; savings account usually still fine |
| Over £25,000 | Cash ISA increasingly valuable to shelter interest |
| Any amount, any rate | ISA is never worse - maximise it first if unsure |
What happens if you earn more interest than your PSA?
If your savings interest exceeds your PSA, you owe income tax on the excess at your marginal rate. You do not pay this automatically through PAYE - you need to tell HMRC.
If you are already in Self Assessment, include savings interest above your PSA on your tax return. If you are not in Self Assessment, HMRC will usually collect the tax by adjusting your tax code for the following year. Banks report interest to HMRC, so they typically calculate this for you - you will receive a letter explaining any adjustment.
If you think your savings interest might push you over your PSA, it is worth checking your position at the start of the tax year and considering moving some savings into an ISA to avoid a tax bill later.
The starting rate for savings
There is an additional relief that some people miss. If your non-savings income (wages, pension) is below £17,570, you may qualify for the starting rate for savings of 0% on up to £5,000 of savings interest - on top of the PSA.
This is most relevant to people who are retired with modest pension income, or who work part time. If your non-savings income is £12,570 (the Personal Allowance), you have £5,000 of starting rate band available, plus £1,000 of PSA. This means you could earn up to £6,000 of savings interest tax-free in one year.
FAQ
Do I need to do anything to claim the Personal Savings Allowance?
No. The PSA is applied automatically. Banks and building societies pay savings interest gross (without deducting tax) since 2016. You do not need to register or fill in a form. If your interest stays within your PSA, you owe no tax and need do nothing.
Does the PSA apply to Premium Bond prizes?
No. Premium Bond prizes are not interest - they are prize winnings. They are tax-free regardless of your income and do not count towards your PSA. You can win as many Premium Bond prizes as you like without affecting your PSA.
Does ISA interest count towards the PSA?
No. ISA interest is always tax-free and is completely separate from the PSA. Even if you earn £10,000 of interest in an ISA, it does not count towards or erode your £1,000 PSA from non-ISA accounts.
What is the PSA for a non-taxpayer?
If your total income is below the Personal Allowance (£12,570 for most people in 2026-27), you pay no income tax at all. This means you can earn unlimited savings interest tax-free - the PSA is irrelevant. If a bank has deducted tax on your savings interest, you can claim it back from HMRC.
Does the PSA apply to joint accounts?
Each person gets their own PSA. For a joint savings account, the interest is typically split 50/50 for tax purposes. Each account holder can then use their own PSA against their half of the interest. If you are a basic rate taxpayer and your joint account earns £800 of interest, your share is £400 - well within your £1,000 PSA.
Does the PSA reset each year?
Yes. The PSA is £1,000 (or £500) per tax year. Any unused allowance does not carry forward to the following year. If you earned only £200 of interest this year, you do not get £1,800 next year - you get the standard £1,000 again.