Millions of fixed-rate savings deals to mature within three months triggering a wave of tax bills
A large chunk of Britons could face a tax bill on their savings interest in the coming months, analysis shows.
Some 1.2million fixed-rate bonds are set to mature between June and September 2025 containing £70.5billion, according to Paragon Bank.
Seven in 10 accounts set to mature will generate enough interest to potentially incur a tax bill, the data suggests.
Of the 1.2million accounts, almost all will generate interest of more than £500.
This would breach the Personal Savings Allowance (PSA) of £500 for higher-rate taxpayers.
Meanwhile 822,000 accounts will generate more than £1,000 in interest, resulting in a tax liability for basic-rate taxpayers who have a PSA of £1,000.
Under the PSA, basic rate taxpayers can earn up to £1,000 in savings interest across all accounts held before they incur tax, with higher rate taxpayers able to earn up to £500.
Additional rate taxpayers don't have a PSA and pay tax on all savings interest outside an Isa.
The figures are from an analysis of CACI data which is pulled from over 40 savings providers.
Fixed-rate savings accounts surged in popularity in the second half of 2023 and into 2024 as savers took advantage of high fixed-rate savings accounts offering rates as high as 6.2 per cent in September 2023.
Derek Sprawling, head of savings at Paragon Bank said: 'Fixed-rate savings dominated the market during 2023 and 2024, with many accounts benefitting from high savings rates.'
Many of these one-year accounts will be maturing over the next six months, so savers could face a savings tax bill on the interest.
The best way for savers who want to shield their savings from a savings tax bill is by keeping it in an Isa, a type of tax wrapper where any interest earned is completely tax free.
For this reason, Sprawling said: 'I urge savers review their accounts and make the most of their tax-free allowance by utilising other savings products, including cash Isas.'
The best cash Isas currently offer rates north of 5 per cent which is higher than the best one-year fixed rate bond which pays 4.45 per cent.
How will I know if I need to pay tax on savings interest?
Banks, building societies and NS&I report your taxable interest directly to HMRC each year.
When HMRC receives this information, it checks if you've gone over your PSA.
If you have, any tax due will usually be collected via a change to your tax code in the following year – assuming you're employmed and part of the PAYE scheme.
If you are not employed, you may need to fill in a Self Assessment return and pay the tax due.
So, keep track of how much interest you are earning and estimate your overall likely tax rate.
If the interest you earn on savings is over £10,000 you need to complete a Self-Assessment tax return.
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