More than two in five (44%) savers don’t understand their personal savings allowance (PSA), new research from Shawbrook has highlighted, meaning many could be losing thousands of pounds every year.

The PSA is what savers can earn in interest before having to potentially pay tax.

This allowance hasn’t been changed since it was introduced in 2016, meaning that the basic rate taxpayer has an allowance of £1,000. For higher rate taxpayers, this decreases to £500, and for additional rate taxpayers, it is £0.

Shawbrook’s latest findings, based on a study among 2,022 UK adults of whom 1,393 were active savers, have indicated that 23% of those who save claim to be aware of what the PSA is but don’t understand it, while 21% said they’ve never heard of it and do not understand how it works.

The bank warned that this lack of understanding could potentially be costing savers, as it could mean many are unknowingly liable to pay tax because they didn’t take steps to minimise this through savings accounts such as ISAs.

Head of savings at Shawbrook, Adam Thrower, commented: “It’s astonishing how many people are inadvertently leaving their wallets wide open for the taxman. Hundreds of thousands of savers remain unaware that the interest they accrue on their savings is subject to tax.

“The result? Their pockets will end up less full than anticipated. People need to be looking at their interest rate and how much they are due to earn in interest this year and consider making use of ISA allowances to earn tax-free interest.”

Recent analysis by Shawbrook of CACI data revealed that 4.2 million more non-ISA savings accounts were liable for tax on savings in September last year, compared to over three million in April 2023.

While the higher returns are a positive for savers, it is also now easier to be over the threshold for tax.

“Savers can use the £20,000 ISA limit to save into various accounts, from easy access or fixed rates,” Thrower added. “What’s more, each person has their own limit, so for a couple, you could save up to £40,000 tax-free each year. But, as we approach the end of the tax year, savers should make note that the ISA allowance does not ‘roll over’ into the following year. It is a use it or lose it situation.”

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