What Is the Personal Savings Allowance?

The Personal Savings Allowance (PSA) allows some savings income to be taxed at 0%. The amount available depends on your overall Income Tax position rather than on how much money you have saved.

For the 2026/27 tax year, a basic-rate taxpayer can have a Personal Savings Allowance of £1,000, while a higher-rate taxpayer can have an allowance of £500. Additional-rate taxpayers do not receive a Personal Savings Allowance.

The allowance applies across your relevant savings income for the tax year. It is not a separate allowance for every savings account, bank or building society you use.

Why Does Your Tax Band Affect Your Personal Savings Allowance?

The Personal Savings Allowance is sometimes described simply as allowing you to earn £1,000 of interest tax-free. That can be misleading because £1,000 is only the amount available to someone whose overall Income Tax position remains within the basic-rate band.

Savings interest is considered alongside your other income when your tax position is established. This means you cannot necessarily determine your Personal Savings Allowance by looking only at your salary or pension.

For example, someone whose other income is already close to the higher-rate threshold could receive enough savings interest for part of their income to enter the higher-rate band. If they become a higher-rate taxpayer, their Personal Savings Allowance can be £500 rather than £1,000.

Technically, the Personal Savings Allowance operates as a 0% tax band for savings income. Interest covered by it can therefore remain relevant to your overall Income Tax calculation even though no tax is charged on that part of the interest.

What Savings Interest Does the Personal Savings Allowance Cover?

The Personal Savings Allowance is not restricted to one particular type of savings account. It can cover qualifying savings income such as interest from bank and building society accounts, credit union accounts and certain other forms of interest-producing savings or investments.

The important point is that the allowance applies to your relevant savings income as a whole. If you receive £450 of interest from one account, £400 from another and £350 from a third, your total savings interest is £1,200.

Using several accounts or several different banks does not create additional Personal Savings Allowances. The relevant interest is brought together when your savings-income tax position is considered.

What Happens If You Exceed the Personal Savings Allowance?

Receiving more interest than your Personal Savings Allowance does not mean all of your savings interest suddenly becomes taxable at your normal rate. The part covered by the PSA is charged at 0%, while any remaining savings income can be subject to Income Tax if no other relevant tax-free amount covers it.

Consider a basic-rate taxpayer receiving £1,400 of savings interest. If they have a £1,000 Personal Savings Allowance and no unused Personal Allowance or Starting Rate for Savings available, £400 remains subject to the savings basic rate.

The tax rate applying to any remaining interest depends on your overall Income Tax position. This is why the allowance and the rate charged above it need to be considered separately.

How Does the Personal Savings Allowance Work With Other Tax-Free Savings Amounts?

The Personal Savings Allowance is not the only part of the Income Tax system that can allow savings interest to be received without paying tax.

If your Personal Allowance has not already been fully used by other income, some savings interest can potentially be covered by the unused amount. People with sufficiently low other income may also qualify for the Starting Rate for Savings, which can provide a 0% rate on up to £5,000 of savings income in 2026/27.

The Personal Savings Allowance can then apply as a separate 0% band where you are eligible. This means £1,000 should not be treated as the maximum amount of savings interest a basic-rate taxpayer could ever receive without paying tax.

Tax on Savings Interest Explained covers the wider calculation and explains how the Personal Allowance, Starting Rate for Savings and Personal Savings Allowance can work together.

Does Cash ISA Interest Use Your Personal Savings Allowance?

No. Eligible interest earned within a Cash ISA does not use your Personal Savings Allowance because it is sheltered from UK Income Tax by the ISA wrapper.

This is different from ordinary savings interest covered by the PSA. Ordinary qualifying interest remains within the savings-income tax system and can be charged at 0% under the allowance, whereas eligible Cash ISA interest is tax-exempt under the ISA rules.

For example, receiving £800 of interest within a Cash ISA does not reduce a £1,000 Personal Savings Allowance to £200. The allowance remains available when considering relevant savings income outside the ISA.

ISA Tax Benefits Explained looks more broadly at how the ISA wrapper affects interest, investment income and capital gains.

Conclusion

The Personal Savings Allowance can allow qualifying savings income to be charged at 0%, but the amount available depends on your overall Income Tax position. For 2026/27, it can be £1,000 for a basic-rate taxpayer, £500 for a higher-rate taxpayer and £0 for an additional-rate taxpayer.

The allowance applies across your relevant savings income rather than to each account separately. Other parts of the tax system can also affect whether savings interest is ultimately taxed, while eligible interest earned within a Cash ISA does not use the Personal Savings Allowance.