£250,000 Savings at 5% — Tax on Interest 2025-26
Annual interest earned: £12,500 · Personal Savings Allowance applied
Tax breakdown — £250,000 savings at 5%
| Taxpayer band | PSA | Taxable interest | Tax owed | Net interest |
|---|---|---|---|---|
| Basic rate (salary ≤ £50,270) | £1,000 | £11,500 | £2,300 @20% | £10,200 |
| Higher rate (£50,270–£125,140) | £500 | £12,000 | £4,800 @40% | £7,700 |
| Additional rate (over £125,140) | Nil | £12,500 | £5,625 @45% | £6,875 |
Frequently asked questions
How much tax do I pay on interest from £250,000 savings at 5%?
Interest earned: £12,500/year. Basic rate taxpayer (salary under £50,270): tax £2,300, net interest £10,200 — the first £1,000 is covered by your Personal Savings Allowance. Higher rate taxpayer (salary £50,270-£125,140): tax £4,800, net £7,700 (PSA is only £500). Additional rate taxpayer (salary over £125,140): no PSA, tax £5,625, net £6,875.
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 5%, what balance triggers a tax bill for a basic rate taxpayer?
A basic rate taxpayer's PSA covers £1,000 of interest. At 5% interest, this is used up at a balance of £20,000. With £250,000 at 5%, your interest is £12,500, so you exceed the PSA by £11,500, which is taxed at 20%, giving a bill of £2,300.
Should I put £250,000 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 (but at 5% on £250,000 you earn £12,500, exceeding the basic rate PSA of £1,000). 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.