Savings Interest

To understand savings interest, you should first understand how a savings account works with interest rates. Certain savings accounts will encourage you to save by rewarding you with an annual percentage of interest added to your total. The actual rate you get can vary depending on the type of account you have, how long you’ve kept the money in there undisturbed and the financial institution offering it.

Types of savings accounts include:

• Cash ISAs – tax-free interest accounts
• Easy access savings – allows you to withdraw and return as you please
• Notice accounts – you have to notify your provider when you’d like to withdraw
• Regular savers – you have to save regularly (e.g. monthly) with a fixed sum
• Fixed-rate bonds – this offers you a fixed interest rate over a certain period of time
• Help to Save accounts – these are tax-free accounts with a bonus at the end

Are you taxed on savings interest?

In short, yes. On non-tax-free accounts, if you receive interest above the Personal Savings Allowance (£1,000 if you’re a basic rate taxpayer or £500 if you’re a higher rate taxpayer), you need to declare it via an SA100 Self Assessment tax return. You’ll then be liable to pay Income Tax on it.