UK Savings Interest: Personal Savings Allowance vs Cash ISA

• 1. The Personal Savings Allowance
• 2. What that means as a balance
• 3. Where a Cash ISA helps
• 4. Compare rates honestly
• Free tools

Higher savings rates mean more UK savers now earn enough interest to think about tax. Two rules decide how much of it stays tax-free.

§1. The Personal Savings Allowance

Interest up to £1,000 a year is tax-free for basic-rate taxpayers and up to £500 for higher-rate taxpayers. Additional-rate taxpayers get no allowance. Some people on low incomes can also use the starting rate for savings.

§2. What that means as a balance

Roughly: allowance divided by the interest rate. At 5%, £1,000 of interest comes from about £20,000 of savings and £500 from about £10,000. At 4%: about £25,000 and £12,500. At 3%: about £33,000 and £16,700.

§3. Where a Cash ISA helps

Interest inside an ISA doesn’t count toward the allowance and isn’t taxed. The annual ISA allowance is £20,000 across all ISAs. It matters most for higher-rate taxpayers and larger balances.

§4. Compare rates honestly

If you’re well inside your allowance, a slightly higher taxable rate can beat a Cash ISA. If you’re above it, the ISA can win even at a lower headline rate. Check announced changes for future tax years too.

§Free tools

• High-yield savings calculator with a UK allowance table: https://smartbudgetsheets.surge.sh/calculators/high-yield-savings-calculator/?utm_source=nostr
• APY calculator: https://smartbudgetsheets.surge.sh/calculators/apy-calculator/?utm_source=nostr

General information, not tax advice. Allowances can change; check GOV.UK for the current tax year.