New analysis by Yorkshire Building Society reveals that 5.3 million non-ISA savings accounts are now forecast to earn over £1,000 in interest, a 1047% increase since 2018, leaving millions liable for tax on their savings. The surge is driven by inflation, a higher interest rate environment, and frozen tax-thresholds.
Explosion in taxable accounts
In January 2018, around 462,000 accounts would have earned more than £1,000 in interest and been potentially liable for tax. After a temporary dip during the pandemic's ultra-low rate years, the number exploded as rates rose, reaching 2.5 million in January 2023 and surging to today's 5.3 million — more than eleven times higher than in 2018.
The Personal Savings Allowance (PSA) is the amount of interest you can earn from savings each year without paying tax on it. Basic rate taxpayers can earn up to £1,000 in interest tax-free, higher rate taxpayers up to £500, while additional rate taxpayers receive no allowance. Any interest above these limits is taxed at your usual income tax rate.
Allowance frozen as rates rise
When the PSA was introduced on 6 April 2016, the majority of easy access accounts paid 1% or less; now the majority pay 3% or more. In 2016, basic-rate taxpayers could put away £100,000 in a typical savings account without breaching their allowance. In 2026, savers would only be able to save around £25,000 at rates of 4% without breaching it. For those earning over £50,271 and paying higher-rate tax, that amount falls to around £12,500.
Tina Hughes, Director of Savings at Yorkshire Building Society, said: “The scale of this shift is staggering. Our analysis shows that the number of savings accounts potentially exposed to tax has gone from under half a million to well over five million in just a few years. This isn’t about people suddenly becoming wealthy — it’s about a frozen allowance colliding with much higher interest rates.”
“People doing the responsible thing — saving for a home, for emergencies or for the future — are now being punished by outdated rules. The Personal Savings Allowance urgently needs reform so it keeps pace with reality and supports savers, rather than catching them out.”
Low awareness and urgent advice
According to the Financial Conduct Authority (FCA), people hold between 3 and 5 savings products across 2-3 providers, meaning many could be liable to pay tax without awareness. In January 2022 just 172,000 accounts were potentially liable; within 12 months that figure multiplied more than fourteen fold, underlining how ill-equipped the PSA is for changeable, or higher rate interest environments.
Yorkshire Building Society research shows that 36% of people have never heard of the Personal Savings Allowance, and only 31% know how to pay the tax if they exceed it — increasing the risk of accidental non-payment and unexpected bills. With the typical median house deposit now £36,500, millions saving for a first home or building a financial safety net are being pulled into tax liability. The society has urged savers to review their savings, understand how much interest they earn across all accounts, and make full use of tax-efficient options such as ISAs — particularly for those holding £20,000 or more in competitive savings products.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “Savers are earning higher rates of interest, but they are also becoming ever more exposed to tax due to fiscal drag. The fact that there are millions of accounts becoming liable to tax over the past five years alone just shows how the Personal Savings Allowance has not moved on with the times and is in dire need of review to protect savers.
“Those who have been working hard to save for a home might not realise they could be breaching their PSA due to higher interest rates. To help savers shield their hard-earned cash from tax, it’s wise to take advantage of ISAs.
“As around a third of consumers do not really understand what the PSA is, it’s worth seeking independent advice to assess any savings interest that may be liable to tax before it becomes an unwelcome surprise.”
