The number of UK savings accounts earning enough interest to potentially trigger a tax bill has risen by 1,047% since 2018, as higher interest rates and frozen tax thresholds pull millions more savers into the tax net, according to analysis of CACI data by Yorkshire Building Society.

The analysis found that around 462,000 non-ISA savings accounts were forecast to earn more than £1,000 in interest in January 2018.

That figure fell during the ultra-low interest rate period of the pandemic, but bounced back to 2.5 million in January 2023 and has now reached 5.3 million, more than eleven times the 2018 level.

The personal savings allowance (PSA) allows basic-rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher-rate taxpayers have a £500 allowance and additional-rate taxpayers receive no allowance. With savings rates now substantially higher than when the PSA was introduced in 2016, savers can breach their allowance with much smaller balances.

Yorkshire Building Society said a basic-rate taxpayer could have held around £100,000 in a typical savings account paying 1% in 2016 without exceeding the £1,000 allowance. At a 4% rate in 2026, that threshold falls to around £25,000, or approximately £12,500 for higher-rate taxpayers.

Awareness of the rules also remains low. Research by the society found that 36% of people had never heard of the PSA, while only 31% knew how to pay tax if they exceeded it. The issue could particularly affect people saving for a home, with the typical median house deposit now standing at £36,500.

Tina Hughes, director of savings at Yorkshire Building Society, said: “The scale of this shift is staggering. Our analysis shows that the number of savings accounts potentially exposed to tax has gone from under half a million to well over five million in just a few years. This isn’t about people suddenly becoming wealthy — it’s about a frozen allowance colliding with much higher interest rates.

“People doing the responsible thing — saving for a home, for emergencies or for the future — are now being punished by outdated rules. The Personal Savings Allowance urgently needs reform so it keeps pace with reality and supports savers, rather than catching them out.”

Rachel Springall, finance expert at Moneyfactscompare, added: “Savers are earning higher rates of interest, but they are also becoming ever more exposed to tax due to fiscal drag. The fact that there are millions of accounts becoming liable to tax over the past five years alone just shows how the Personal Savings Allowance has not moved on with the times and is in dire need of review to protect savers."

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