Why a Cash ISA could be a smart way to save this tax year 

Why are people being warned about savings tax? 

As interest rates have increased, savings accounts are paying  more interest than they have since the pandemic. This means that some savers are earning enough interest on their deposits that they now have to pay tax on their earnings 

HMRC has said that this could affect thousands of savers, particularly people who have built up larger balances over time or who are benefiting from higher interest rates across several accounts. 

What is the Personal Savings Allowance? 

The Personal Savings Allowance is the amount of interest you can earn each tax year before tax may apply. 

How much you get depends on your income tax band: 

• Basic rate taxpayers (earning £12,571 – £50,270 annually) can usually earn up to £1,000 in interest tax free 

• Higher rate taxpayers (earning £50,271 – £125,140 annually) can usually earn up to £500 

• Additional rate taxpayers (earning over £125,140 annually) do not receive a Personal Savings Allowance 

At first glance, the Personal Savings Allowance looks like a lot, but when savings balances are higher and as interest rates improve, it can be easier to reach than you might expect.  

If you’d like a clearer breakdown of the personal savings allowance and how savings tax works, MoneySavingExpert has a helpful guide you can check out.

What happens if you go over your allowance? 

If you earn more in interest than your allowance you will need to pay tax on the extra amount. 

In many cases, HMRC collects this automatically by adjusting your tax code. Even so, it can still come as a surprise, especially if you were not expecting to pay tax on savings at all. 

For lots of savers, this has prompted a closer look at how and where they save. 

What is a Cash ISA? 

A Cash ISA (Individual Savings Account) is a savings account where the interest you earn is tax -free.  

That means: 

• You do not pay tax on the interest 

• It does not count towards your Personal Savings Allowance 

• You do not need to declare it to HMRC 

You can save up to £20,000 each tax year across all your ISAs. This is the current annual ISA allowance set by the government. If you want to stay up to date with ISA rules and allowances, check out this guide from MoneyHelper on how ISAs work and any changes that may apply.

For people who are close to their allowance, or keen to avoid unexpected tax, this can offer real peace of mind. 

Why choose a credit union Cash ISA? 

A credit union Cash ISA, like our 3.25% AER Cash ISA, gives you the same tax-free benefits as any other Cash ISA. The difference is who you are saving with. 

At Great Western Credit Union, we are owned by our members, not shareholders. When you save with us, your savings help support fair and affordable lending for people in the communities we serve. 

That means: 

• Your money stays within the community 

• We reinvest in people, not profits 

• We focus on helping our members build long term financial wellbeing 

So, while your savings are working hard for you, they’re also helping others access fair financial support when they need it. 

Could a Cash ISA be the smarter choice? 

A Cash ISA might be worth thinking about if: 

• You want a competitive return on your savings  

• You are close to your Personal Savings Allowance 

• You want a simple way to earn interest tax free 

• You prefer a low risk, straightforward savings option 

Even regular savings can grow into something meaningful over time. Keeping that growth tax free can make a bigger difference than many people expect. 

Making your savings work harder, in the right way 

Saving is about more than just putting money aside. It is about making sure your money is working for you in a way that feels right. 

With changes to interest rates, tax thresholds and savings rules, it can be a good time to check where your savings sit and whether they still suit your needs. A Cash ISA may not be the right choice for everyone. But for many people this tax year, it could be a simple way to protect your savings, avoid unexpected tax, and support community finance at the same time. 

If you are thinking about opening a Cash ISA, you can find out more about our 3.25% AER tax‑free Cash ISA here  or explore our full range of savings options to see what works best for you.