The Personal Savings Allowance means you could earn up to £1,000 of interest over a tax year in non-ISA savings accounts before having to pay any tax on it.
The PSA extends to other interest-earning products, such as current accounts.
Interest on ISAs doesn't count towards your PSA, as it is already tax-free.
The amount of your PSA depends on your income-tax rate:
- If you're a basic rate taxpayer, you can earn up to £1,000 of interest without paying tax.
- If you're a higher-rate taxpayer, you can earn up to £500 of interest without paying tax.
- If you're an additional rate taxpayer (45%), you don't get an allowance.
There are Government rules to support the PSA, ensuring banks and building societies do not deduct income tax from interest earned on savings and current accounts.