The PSA lets most people earn savings interest tax-free, but the size of the allowance shrinks as your income rises, and disappears entirely for top earners.
With interest rates higher than they were for years, the Personal Savings Allowance (PSA) matters more than it has in a long time. It is the slice of savings interest you can earn before any tax is due, and crucially its size depends on which Income Tax band you are in. For top earners, it is zero.
The PSA is one of the clearest examples of how UK tax depends on your overall income, not just your savings:
| Tax band (2025/26) | Personal Savings Allowance |
|---|---|
| Basic rate (income £12,571 to £50,270) | £1,000 |
| Higher rate (income £50,271 to £125,140) | £500 |
| Additional rate (income above £125,140) | £0 |
Note that adding savings interest to your income can itself tip you from basic into higher rate, shrinking your PSA in the process. The PSA sits on top of your Personal Allowance, which already shields the first £12,570 of total income.
Suppose Leah is a higher-rate taxpayer earning £60,000 from her job. She has £40,000 in an easy-access savings account paying 4.5%, generating £1,800 of interest in 2025/26.
Her PSA as a higher-rate taxpayer is £500. So:
Tax due = £1,300 × 40% = £520.
If Leah had instead held that money in a Cash ISA, all £1,800 of interest would be tax-free and would not touch her PSA at all. Our savings tax calculator lets you compare an ISA against a taxable account.
Leah does not need to do anything manually. Banks report interest to HMRC, which usually collects the £520 by reducing her tax code for the following year, so the tax comes out of her salary automatically. If she files Self Assessment, she declares the interest on her return instead.
There is a lesser-known extra: the starting rate for savings, a 0% band on up to £5,000 of interest for people with low earned income. It reduces pound for pound as your non-savings income rises above the £12,570 Personal Allowance, so it is fully used up once earned income reaches £17,570. It mainly helps pensioners and others living largely on savings, who can combine it with the PSA to receive a substantial amount of interest tax-free.
Higher rates have turned the Personal Savings Allowance from a footnote into a real planning point. For higher earners with large balances, using your ISA allowance first is usually the smarter move.
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