What is Personal Savings Allowance?

Full Definition

The Personal Savings Allowance (PSA) lets most people earn some savings interest free of Income Tax. For 2026/27 basic-rate taxpayers get £1,000 of tax-free interest, higher-rate taxpayers get £500, and additional-rate taxpayers (income above £125,140) get nothing. The PSA covers interest from bank and building society accounts, credit union accounts and most bonds — but not ISAs, which are already tax-free. Banks no longer deduct tax at source, so interest is paid gross and any tax due is collected through PAYE tax code adjustments or Self Assessment. With higher interest rates, more savers now exceed their PSA, making ISAs and the starting rate for savings increasingly valuable.

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