£20,000 Savings at 4.5% — Tax on Interest 2025-26
Annual interest earned: £900 · Personal Savings Allowance applied
Tax breakdown — £20,000 savings at 4.5%
| Taxpayer band | PSA | Taxable interest | Tax owed | Net interest |
|---|---|---|---|---|
| Basic rate (salary ≤ £50,270) | £1,000 | £0 | £0 @20% | £900 |
| Higher rate (£50,270–£125,140) | £500 | £400 | £160 @40% | £740 |
| Additional rate (over £125,140) | Nil | £900 | £405 @45% | £495 |
Frequently asked questions
How much tax do I pay on interest from £20,000 savings at 4.5%?
Interest earned: £900/year. Basic rate taxpayer (salary under £50,270): tax £0, net interest £900 — the first £1,000 is covered by your Personal Savings Allowance. Higher rate taxpayer (salary £50,270-£125,140): tax £160, net £740 (PSA is only £500). Additional rate taxpayer (salary over £125,140): no PSA, tax £405, net £495.
What is the Personal Savings Allowance for 2025-26?
The PSA allows basic rate taxpayers to earn £1,000 in savings interest tax-free per year, and higher rate taxpayers £500. Additional rate taxpayers (over £125,140) have no PSA — all interest is taxed at 45%. ISA interest is always tax-free and does not count toward the PSA.
At 4.5%, what balance triggers a tax bill for a basic rate taxpayer?
A basic rate taxpayer's PSA covers £1,000 of interest. At 4.5% interest, this is used up at a balance of £22,222. With £20,000 at 4.5%, your interest is £900, so you are fully within the PSA and pay no tax on this interest.
Should I put £20,000 in an ISA or savings account?
A cash ISA pays tax-free interest regardless of your tax band. A regular savings account uses your PSA first (which fully covers your £900 interest at 4.5%). If you are a higher or additional rate taxpayer, an ISA is more valuable. Basic rate taxpayers may not benefit from an ISA if interest stays within their £1,000 PSA.