Millions of savers could face an unexpected tax bill as the Personal Savings Allowance marks its 10-year anniversary on 6 April.
Despite changing interest rates and fiscal drag, the allowance has never been amended.
According to research by Moneyfacts, savers who locked £20,000 into the top one-year fixed bond of 4.58% in March 2025 would receive annual interest of around £916. This would breach the £500 PSA for higher-rate taxpayers and come very close to the £1,000 PSA for basic-rate taxpayers.
However, a £20,000 investment in the top one-year ISA that paid 4.45% would have earned £890 completely tax-free.
A survey by Yorkshire Building Society found that over the past decade, basic-rate taxpayers have paid over £4.7 billion in tax on their savings interest, much of which could have been avoided by using ISA wrappers.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Cash ISAs have proven their worth to savers over many years, especially as fiscal drag causes millions to breach their Personal Savings Allowance. April marks the 10-year anniversary of the PSA and while it protected savings interest from tax when it was launched for many, it’s outdated and needs to change.
“Interest rates are higher than back then and more savers are expected to see their savings income taxed in the year ahead due to fiscal drag. Those basic-rate taxpayers dragged into the higher rate tax band at 40% will see their PSA halved to £500. This means even someone building a house deposit will pay tax on a standard savings account but not if it is held in an ISA.”
With cash ISA rates not too dissimilar from non-ISAs at this time of the year, Moneyfacts said someone who has or is about to move up an income tax band “would be wise” to use up their cash ISA allowance ahead of 6 April.
“The past 10 years have shown consumers the importance of building a healthy nest egg to help brave economic storms, help with financial resilience and to mitigate the reliance on short-term debt. The households’ savings ratio was 10.2% during the second quarter 2025. Those extra savings need to be put into the right place. Unfortunately, over a third (36%) of people have never heard of the PSA according to Yorkshire Building Society and over the past year, basic-rate taxpayers have paid over £4.7 billion in tax on savings interest since the PSA was introduced. This shows the PSA has not moved along with the times,” Springall added.
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