Millions of ordinary savers are being dragged into paying tax on their interest due to the personal savings allowance (PSA) remaining frozen since 2016, Yorkshire Building Society has warned.

The society suggested that soaring interest rates and frozen tax thresholds have pushed more people into higher tax bands.

New analysis of HMRC data and forecasts by the building society outlined the impact of the policy. By the end of the 2025/26 tax year, the Yorkshire estimated that taxpayers will have paid over £28bn in tax on their interest since the PSA was introduced – with basic rate taxpayers alone paying £4.7bn.

The PSA is frozen at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, while additional rate taxpayers still have no allowance at all. During the same period, however, the Bank of England base rate has risen from 0.50% to 3.75%, pushing savers over their allowances.

“Ordinary people are being penalised by a system that simply hasn’t kept pace with reality,” commented director of savings at Yorkshire Building Society, Tina Hughes.

“These aren’t wealthy investors – they’re people putting money aside for a house deposit, families saving for their children, or those planning a well-earned holiday.”

Yorkshire Building Society research also warned that knowledge of the PSA is low, with the society’s findings suggesting that only 51% of people can correctly identify what it stands for.

Over a third (36%) have never heard of the PSA, and among those who claimed to understand it, over half (52%) do not know the limits.

Hughes added: “When the PSA was introduced, almost no one breached it. Today, millions do – not because they’re rich, but because the allowance is frozen and thresholds haven’t moved.

“People doing the right thing are facing rising tax bills and fewer ways to protect their savings. It’s time for a modern, fair framework that gives savers clarity and confidence.”

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