You have a 'Personal Savings Allowance' or PSA, which means you can earn interest - from savings, loans - such as peer-to-peer or bonds - tax free up until a certain amount. Your tax-free allowance depends on how much income you earn in a tax year - that's from Apri 6th to April 5th the following year.

Basic Rate tax-payers can earn £1,000 interest a year tax-free and Higher Rate tax-payers can earn £500. Unfortunately, Additional Rate tax-payers don't have an allowance and have to pay tax on any interest they earn outside of ISAs

Not sure which income tax-band you are in? Here's a breakdown:

Your IncomeIncome Tax BandYour Tax-Free Allowance
Up to £11,850No Rate£1,000
£11,851 to £46,350Basic Rate£1,000
£46,351 to £150,000Higher Rate£500
Over £150,000Additional Rate£0

Earning more interest than your PSA? Open a Cash ISA for interest from savings, a Stocks & Shares ISA if interest is from Bonds or an Innovative Finance ISA if interest is from Peer-to-Peer lending.

Side note: You can only open one Cash ISA and one Investment ISA in a tax-year. 


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