The Personal Savings Allowance is the amount of savings interest you may be able to earn each tax year without paying tax on that interest. The allowance depends on your Income Tax band.
Personal Savings Allowance in plain English
The Personal Savings Allowance, often shortened to PSA, is a tax-free allowance for savings interest. It lets many people earn some bank or building society interest without paying tax on that interest.
The amount depends on your tax band. Basic-rate taxpayers can usually earn up to £1,000 of savings interest tax-free. Higher-rate taxpayers can usually earn up to £500. Additional-rate taxpayers do not get a Personal Savings Allowance.
To work out which band applies, HMRC looks at your income including the savings interest itself. This means a large amount of interest can sometimes push someone into a higher tax band.
The allowance applies to interest from ordinary savings accounts, current accounts, fixed-rate bonds, credit unions and similar savings products. Interest inside a Cash ISA is normally tax-free and does not use your Personal Savings Allowance.
The Personal Savings Allowance is different from the starting rate for savings and different from the ISA allowance. These rules can overlap, so the best account depends on your income, interest earned and whether you want to use a tax-free ISA wrapper.
Calculate savings growth and ISA alternatives
Use the savings calculators to estimate interest, compare tax-free ISA saving and check how your cash balance may grow over time.
Savings Goal Calculator
Work out how long it may take to reach a savings target.
Personal Savings Allowance by tax band
| Income Tax band | Personal Savings Allowance | What it means |
|---|---|---|
| Basic rate | £1,000 | You may be able to earn up to £1,000 of savings interest before tax is due. |
| Higher rate | £500 | You may be able to earn up to £500 of savings interest before tax is due. |
| Additional rate | £0 | No Personal Savings Allowance is available. |
Example of how the allowance works
If you are a basic-rate taxpayer and earn £700 in savings interest, that interest is within the £1,000 Personal Savings Allowance, so no savings tax should be due on that interest.
If you are a basic-rate taxpayer and earn £1,300 in savings interest, £1,000 may be covered by the allowance and £300 may be taxable.
If you are a higher-rate taxpayer and earn £1,300 in savings interest, £500 may be covered by the allowance and £800 may be taxable.
Important: this is a simplified example. Your full tax position can depend on total income, starting rate for savings, personal allowance and other income.
How ISAs fit with the Personal Savings Allowance
A Cash ISA is often used when you want savings interest to be tax-free without relying on the Personal Savings Allowance.
This becomes more useful when interest rates are high, your cash balance is large, or you are a higher-rate taxpayer with a smaller PSA.
ISA Calculator
Estimate ISA interest, contributions and remaining annual ISA allowance.
Common Personal Savings Allowance mistakes
- Thinking all savings interest is tax-free: the PSA has limits and may be £0 for additional-rate taxpayers.
- Forgetting interest can affect your tax band: savings interest is added to other income when working out your band.
- Confusing PSA with ISA allowance: ISA interest is normally tax-free separately from the PSA.
- Ignoring fixed-rate bonds: large fixed-rate interest payments can use up the allowance quickly.
- Not checking HMRC tax codes: HMRC may adjust tax codes based on expected savings interest.
- Assuming every account is reported the same way: keep your own records of interest paid.