Over three quarters (77%) of the £831.6bn currently held within non-ISA adult savings accounts is earning enough interest to potentially incur a tax payment.

Paragon Bank analysed CACI data and found that £639.7bn of the total would generate interest above £500.

This would breach a higher-rate taxpayer’s personal savings allowance (PSA) of £500, after which they pay tax at 40%. Additional-rate taxpayers do not benefit from any PSA, while basic-rate taxpayers have a £1,000 threshold.

Paragon stated that the number of non-ISA adult savings accounts generating sufficient interest to exceed the £500 interest threshold stood at 9.7 million during September 2024, which were the latest figures available, representing just 14% of total non-ISA adult savings accounts. The bank suggested this means most of the wealth is concentrated in a smaller proportion of accounts.

The number of accounts containing balances earning enough interest to exceed the higher-rate PSA threshold has risen consistently over the past two years. In September 2023, the figure stood at 8.2 million accounts, with just two million accounts generating enough interest to breach the higher rate PSA threshold in September 2022.

“These rising balances, fuelled by higher rates relative to the previous decade, leave some of the most proactive savers exposed to unexpected tax bills,” Paragon’s savings managing director, Derek Sprawling, said.

“Fortunately, cash ISAs offer a valuable shield against this burden, allowing savers to shelter up to £20,000 per year from tax. We have seen a significant shift towards ISAs over the past two years and many of these savers may have already maximised their allowance.

“However, any saver who hasn’t utilised their ISA allowance should consider doing so to shield their interest from tax – and making a note to the same in April.”

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