Parents are being urged to check the interest rate on their savings after the summer holidays, as analysis shows they could be missing out on thousands of pounds.
A new study by savings platform Raisin UK shows that leaving £50,000 in an account paying 1% would generate around £500 in gross interest over 12 months. But the same balance would build up around £2,275 in interest if it was placed in an account paying 4.55% – a difference of £1,775.
Smaller and larger balances
If someone had £25,000 saved, this would accrue £250 over 12 months in an account that pays just 1% – but in an account that pays 4.55%, the interest would be £888.
For bigger amounts, saving £100,000 in an account that pays 1% would give someone £1,000 in interest over 12 months – but this would rise to £3,550 in an account that pays 4.55%.
Why money stays put
Kevin Mountford, personal finance expert and co-founder at Raisin UK, said: “There are good reasons for families to keep more money accessible over the summer. Holidays, childcare, activities, and preparing for the new school year can all mean having several significant expenses within a relatively short period.
“But once those costs have passed, it’s worth asking whether the amount you kept readily available still needs to be there. It’s very easy for money to stay where it is simply because there hasn’t been a reason to move it.”
Tax rules and ISA limits
Basic-rate taxpayers can earn up to £1,000 in savings interest each tax year before they start to pay tax on the interest earned. Higher rate taxpayers can earn up to £500 in savings interest before they have to pay tax, while additional rate taxpayers do not receive any allowance. Any interest earned above these limits is taxed at your usual income tax rate.
Any savings that are in an ISA account are free from tax. You can currently save up to £20,000 every tax year across your ISA accounts, although the rules are changing from April 2027.
The annual cash ISA allowance will drop to £12,000 for savers under 65, though the overall £20,000 ISA limit will remain unchanged. This means savers could, in theory, put the remaining £8,000 of your overall £20,000 allowance into another type of ISA, such as a stocks and shares ISA.
Over-65s will still be able to put up to £20,000 into a cash ISA every tax year.
