Interest Planning for Next YearA LOT of people will have ended up owing tax on savings interest this tax year as a result of the higher interest rates hovering around 4-5% all year meaning you need less savings in order to breach the tax-free levels The easiest way to ensure you won’t need to pay tax on interest is to save in a Cash ISA, although note you may rather use your ISA allowance for investments if this is your preference However, if you do have a substantial amount of cash in a non-ISA savings account, and have not maxed out your ISA allowance for 2025/26 it is not too late to move this to an ISA before your allowance resets Example If you have £30,000 earning 4% in an easy-access savings account, you would earn £1,222 (compounded) in interest over 12 months If you are a basic rate tax payer, you’d pay tax on the £222 at a rate of 20% meaning you’d owe HMRC £44.40 If you are a higher rate tax payer, you’d pay tax on £722 at a rate of 40% meaning you’d owe HMRC £288.80 If you had only used £5,000 of your ISA allowance so far, you’d have £15,000 left Therefore, you could move £15,000 of these savings to an easy-access Cash ISA and even if the interest rate was the same would then have: £15,000 Easy Access @ 4% = £611 interest over a year £15,000 Cash ISA @ 4% = £611 interest over a year
The basic rate tax payer would now owe no tax and the higher rate tax payer would owe tax on £111 at 40% being £44.40 (£240 less!) This example uses fictional numbers for informational purposes and does not constitute tax advice but instead demonstrates how tax works on savings interest Top Paying Cash ISAsTembo - 4.55% Easy Access You can open this account with as little as £10 and the interest rate is 3.4% with a 1.15% 12-month bonus available for new customers only This is not a flexible ISA which means that you cannot withdraw money and then pay it back in later without impacting your £20k ISA Allowance They also aren’t accepting ISA transfers in from previous providers at the moment
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