What’s the personal savings allowance?

Did you know you can earn interest on your money and get to keep it, tax-free?

The personal savings allowance (PSA) is a tax-free allowance that allows UK residents to earn up to £1,000 in interest, tax-free. 

The PSA covers interest earned from: 

  • bank accounts
  • savings accounts
  • credit union accounts
  • building society accounts
  • corporate bonds 
  • government bonds
  • gilts

It includes interest earned on pounds and other currencies held in UK-based savings accounts. 

Your allowance depends on your income tax rate. 

  • Basic-rate taxpayers (20%) have a £1,000 tax-free allowance
  • Higher-rate taxpayers (40%) have a £500 tax-free allowance
  • Additional-rate taxpayers (45%) don’t get an allowance

And to clear up one common question…the allowance is the interest earned not the amount deposited into the account.

So if you’re a basic-rate taxpayer and your savings accounts earn less than £1,000 in interest in a tax year, you don’t have to pay any tax on it. 

As interest rates on savings accounts have been quite low in the previous years, you’d need to have tens of thousands of pounds in savings to exceed the £1,000 PSA limit and start paying tax on your interest. 

Most UK savers (around 95%) don’t pay any tax on their savings interest because of the personal savings allowance.
This allowance is separate to other allowances like your ISA allowance.

Octopus Money Limited is an appointed representative of Octopus Investments Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England & Wales under No. 14069098.

Octopus Money is a trading name of TW11 Wealth Management Limited. Registered in England and Wales (No. 10339119). Authorised and regulated by the Financial Conduct Authority. Our Financial Services Register number is 763630.

As with all investing, your capital is at risk. If you choose to invest with Octopus Money, the value of your investments can go down as well as up and you may get back less than you invest.