• Higher-rate taxpayers would need savings of approximately £14,650 before they start paying tax, based on a one-year fixed-rate of 3.43%
• Analysis of CACI data, which captures savings data from more than 30 leading providers, shows that 16% of non-ISA savings accounts hold balances of £15,000 or over
• CACI data shows that 26.5% of savings by value were held in ISAs in July of this year, down from 29% in January 2019

Savers with a non-ISA account could be losing out on tax savings by keeping their cash outside of the tax-free wrapper as interest rates rise, analysis by Paragon Bank has found.

Higher-rate taxpayers would need savings of approximately £14,650 before they start paying tax, based on the current top-rated one-year fixed-rate of 3.43%. This would deliver £509 interest over the year, breaching the higher-rate taxpayer Personal Savings Allowance (PSA) of £500.

This falls to £14,000 at a rate of 3.6% or £13,300 based on the highest fixed rate currently available.

Analysis of CACI data, which captures savings data from more than 30 leading providers, shows that 16% of non-ISA savings accounts hold balances of £15,000 or over, so could be incurring tax on their interest.

ISAs have become less popular in a low interest rate environment as savers would need to hold large balances to breach the PSA threshold. Based on the best paying one-year fixed-rate non-ISA account from September 2020, at 1.25% a saver would need a pot of £40,000 before they started paying on their interest.

CACI data shows that 26.5% of savings by value were held in ISAs in July of this year, down from 29% in January 2019.

Paragon Bank Savings Director Derek Sprawling said: 

“ISAs have fallen out of fashion in more recent years because the Personal Savings Allowance meant that savers needed significant pots to start earning interest beyond the thresholds. As rates have increased, that threshold has come down significantly and many savers now face the prospect of paying tax on their interest.

“In addition, salaries are increasing as companies react to rising inflation, so savers may find themselves in a higher tax band than they were previously, so could see their PSA halve overnight if their income tips over £50,271.”

He adds: “Whether a saver opts for an ISA or non-ISA depends on their individual circumstances, level of savings and income, but ISAs should always form part of the conversation when savers are looking at what to do with their financial goals.”

For further information contact:

Tom Frew
Media Relations Manger
Paragon
E: [email protected]

www.paragonbank.co.uk 

Notes to editors:

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 £13 billion of assets under management and manages over 450,000 customer accounts.

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. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ.