The number of adult non-ISA savings accounts with balances large enough to incur tax on savings interest has tripled in the past year, according to new analysis from Paragon Bank.

This surge highlights the growing risk of tax exposure for savers who haven't maximised their use of tax-efficient accounts like Cash ISAs.

Under the Personal Savings Allowance (PSA), basic-rate taxpayers can earn £1,000 in interest before facing tax on their savings interest, while higher-rate taxpayers have a £500 allowance.

Paragon's analysis, based on the latest available CACI data, shows a staggering 246% increase in active adult non-ISA accounts earning over £1,000 in savings interest. In November 2022, 1.6 million such accounts existed, compared to 5.5 million in November 2023.

As a percentage of all non-ISA adult accounts, that increased from 2.7% to 8.8% over the year to November 2023.

Similarly, the number of accounts exceeding the higher-rate threshold, those generating £500+ interest, increased from 3.5 million in November 2022 to 8.7 million in November last year. As a proportion of total non-ISA adults accounts, that increased from 5.9% to 13.8% over the same period.

"These rising balances, fuelled by savings rate increases last year, leave some of the most proactive savers exposed to unexpected tax bills," says Derek Sprawling, Paragon Savings Director. "Fortunately, Cash ISAs offer a valuable shield against this burden, allowing savers to shelter up to £20,000 per year from tax.

"By maximising ISA utilisation, savers can ensure their hard-earned interest stays in their pockets.”

Savers with a balance of £12,500 in a savings account offering 4% interest would generate £500 per year. That would need to increase to £25,000 for basic rate taxpayers to generate the £1,000 savings interest required before they start paying tax on their savings.

Savers can utilise cash ISAs to protect their money from tax. Currently, savers can put up to £20,000 per tax year within an ISA wrapper.

For further information contact:

Michael Clarke
Head of Media Relations
Paragon Bank
07740090746
[email protected]

Notes to editors:

Based on CACI data, analysing the proportion of adult-only non-ISA accounts (all forms) likely to be receiving >£500/£1,000 in interest annually. The analysis uses the mid-point of rate bands and value bands from CACI to gauge whether an account would receive interest exceeding the PSA limits based on the £ balance in their account multiplied by the interest rate. CACI compiles the savings deposits of 35 leading providers of cash savings

Paragon Bank PLC a subsidiary of the Paragon Banking Group PLC which is a FTSE 250 company based in Solihull in the West Midlands. Established in 1985, Paragon Banking Group PLC has over £14 billion of assets under management, helping more than 340,000 customers to achieve their ambitions.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551.