Only £500 tax-free — Cash ISA · Premium Bonds · top easy-access and fixed rates compared
Higher-rate taxpayers face a brutal savings tax problem: only £500 of interest per year is tax-free under the Personal Savings Allowance. At 4.5% AER, this PSA is exhausted on a savings balance of just £11,111. Beyond that, HMRC takes 40% of every penny of interest earned outside a tax-free wrapper. The priority for a higher-rate taxpayer is not simply finding the best rate — it is finding the best after-tax rate.
| Account type | Gross rate | Tax | After-tax yield | On £20,000 savings |
|---|---|---|---|---|
| Cash ISA | 4.5% | 0% | 4.5% | £900/yr |
| Premium Bonds (~4.40% prize fund) | ~4.4% | 0% (prizes) | ~4.4% | ~£880/yr (variable) |
| Easy access savings (within PSA) | 4.5% | 0% (within £500 PSA) | 4.5% on first £11k | £500 tax-free |
| Easy access savings (above PSA) | 4.5% | 40% | 2.7% | £540/yr on £20k above PSA pot |
The Cash ISA is the most powerful savings vehicle for a higher-rate taxpayer. Every pound of interest earned inside the ISA wrapper is tax-free — regardless of your PSA. Use your £20,000 allowance before putting cash into any taxable savings account. If you have old Cash ISAs paying poor rates, transfer them to a higher-rate provider (the receiving provider handles the transfer).
NS&I Premium Bonds offer tax-free prizes equivalent to approximately 4.40% prize fund rate (as of 2026, subject to change). All prizes — from £25 to £1 million — are completely tax-free, regardless of tax band. With up to £50,000 per person (£100,000 per couple), Premium Bonds provide a substantial tax-free savings capacity beyond the £20,000 Cash ISA allowance. Fully government-backed — no FSCS limit applies.
NS&I is a government savings institution. No commission is earned on Premium Bonds referrals.
For cash that cannot be sheltered in a Cash ISA or Premium Bonds, Chip consistently offers a top-tier easy-access savings rate. Note that interest is taxable above your £500 PSA — so a higher-rate taxpayer should use Chip only for cash above their ISA and Premium Bond allocation. The after-tax effective rate is approximately 2.7% at 4.5% gross for a 40% taxpayer.
We may earn a commission if you open an account via our link — this doesn't affect our editorial independence.
Atom Bank's fixed rate accounts offer some of the best fixed savings rates on the market. For a higher-rate taxpayer who has already maxed Cash ISA and Premium Bonds, Atom's fixed rate is the best option for remaining cash — the marginally higher rate vs easy access partially compensates for the 40% tax. Fix for 1 year maximum if base rates may fall.
We may earn a commission if you open an account via our link — this doesn't affect our editorial independence.
Higher-rate (40%) taxpayers have a Personal Savings Allowance (PSA) of just £500 per year. At 4.5% AER, this PSA is exhausted on a savings balance of around £11,111. Any interest above £500 must be declared on a Self Assessment tax return and taxed at 40%. A Cash ISA shelters all interest regardless of amount.
Yes, in almost all cases. A Cash ISA pays the same interest as an equivalent savings account but with zero tax deducted. Since Cash ISA rates often track regular savings accounts closely, the after-tax comparison nearly always favours the ISA for higher-rate taxpayers.
Yes — Premium Bond prizes are always tax-free regardless of tax band. The prize fund rate (approximately 4.40% in 2026) represents the effective return, but actual prizes vary. NS&I Premium Bonds are government-backed with no risk to capital, making them particularly valuable for higher-rate taxpayers with savings above the £20,000 Cash ISA allowance.
Yes — savings interest counts as income and is added to your total income for tax. If your salary is near the £50,270 higher-rate threshold, significant savings interest could push you over the threshold and into higher-rate tax. This makes a Cash ISA doubly valuable for people with salary close to the threshold.