From £100 to £100k the place to stash YOUR money to get the very best returns – and pay the least tax: SYLVIA MORRIS

MIillions of savers are facing higher tax bills on their savings over the next five years – but there are a few easy steps you can take to shield yours and hold on to more of your hard-earned cash.

Chancellor Rachel Reeves froze the annual Isa allowance again in her Budget last Wednesday. 

This means the amount of money that you can save within a tax-free wrapper has been held at £20,000 until April 2030.

Its value has already been dramatically eroded since it was frozen at this level in 2018 – had it increased with the cost of living it would now stand at more than £25,000.

The Chancellor also froze income tax thresholds until 2028, which will lead to an additional 2.7 million savers seeing their personal savings allowance cut in half, according to analysis by Coventry Building Society. 

 Over the next few years, protecting your savings from the tax man will become trickier than ever. However, there are golden formulas that you can follow to hold on to as much of your own cash as possible.

There is no one-size-fits-all solution. Whether you are just starting out and putting £100 aside each month, you have £10,000 already banked or your savings pot has reached the £100,000 mark, your savings strategy will look very different.

Here’s my ultimate guide to saving, where to put your money now to bag the best rates on offer and how to shield as much as possible from the tax man . . .

Save £100 a month

If you are at the very beginning of your savings journey then you do not need to worry too much about tax just yet.

The one exception to this rule is if you earn more than £125,140 a year, as in that case every penny that you earn in interest is taxed at your additional rate of income tax of 45 per cent.

Everyone has a ‘personal savings allowance’ – this is the threshold below which you don’t need to pay tax on any interest you earn from your bank.

Basic rate taxpayers have a £1,000 allowance, while higher rate payers can earn £500 in interest before beginning to pay tax. Additional rate taxpayers get no exemption.

The bottom line is if you are a basic rate taxpayer, you can have up to £21,050 in an ordinary (non-Isa)savings account paying 4.75 per cent – the best rate on offer right now – without incurring a tax bill.

Check the best cash Isa rates in our savings tables 

This would give you £1,000 in interest a year. It is only above this that you would start to be charged by HMRC.

Higher rate taxpayers can save up to £10,525 in one of these accounts before using up their savings allowance. 

So if you are just starting to set money aside when you receive your pay slip each month and are comfortably within your allowance, then you should opt for a straightforward savings account.

These typically pay more than cash Isas and are therefore a valuable starting point.

You can earn more by going for a 12-month non-Isa regular savings plan. These accounts will typically pay you an attractive rate as long as you meet a minimum saving requirement each month. 

If you happen to miss out one month then your savings will still grow but at a lower rate.

Look to what your current account provider has on offer. It may be easy to set up a regular savings account with them, but it is worth shopping around to find an account that suits your needs.

First Direct pays a fixed 7 per cent on savings for 12 months but doesn’t allow withdrawals. Co-op Bank pays a variable rate of 7 per cent, so the rate could change, but you can dip into your account as and when you want.

NatWest pays 6 per cent on your first £5,000 of savings in its easy-access Digital Regular Saver. Note that you can only save up to £150 a month in this account.

Otherwise, look at Principality BS’s new Christmas 2025 Regular Saver. You can put in up to £125 a month and earn a fixed 7 per cent rate. Saving the maximum, you will have £1,556 in a year’s time including £56 interest.

When you get to the end of the term, you can use part of your £20,000 Isa allowance to put your lump sum into a tax-free cash Isa or ordinary easy-access account, whichever pays the top rate.

£10,000 in savings

If you have £10,000 in the bank and are continuing to save, the best home for your money will depend on your earnings.

Basic rate taxpayers will only be halfway to busting their personal savings allowance and still do not need to worry about tax.

However, higher rate taxpayers earning more than £50,271 must consider the tax risk they bear by leaving their cash in an ordinary savings account.

Watch out if you get a pay rise and are dragged into the 40 per cent per cent tax bracket. One nasty side effect is that you will pay this higher rate on your interest, too – and your allowance is halved.

If you were earning £1,000 in interest on your savings, this would drop to £800, as £200 would be swallowed up by the taxman each year. 

This is because your allowance immediately drops to £500 and you’ll pay 40 per cent tax on the other £500.

The good news is there are several ways to make sure you don’t join the two million people who are expected to pay tax on their savings interest this year.

If you are a higher rate taxpayer and are concerned you will soon begin to pay tax on your savings interest, it’s time to turn to Isas.

Cash Isas are the bedrock of any savings plan because you can build up a nest-egg where your interest is completely free of tax.

Wily savers cottoned on to this and piled money into Isas ahead of the Budget – a sensible move, and one to follow if you have not already done so. 

You don’t even have to declare the balance of your Isa savings on the tax form you have to fill in for HM Revenue and Customs each year.

If you have opened an easy-access Isa, make sure you keep an eye on the rate because they can change at any time.

One of the accounts which gets a big tick of approval from me is online Ford Money Flexible Isa. It has paid a consistently good rate since it was launched back in 2017. 

It’s not the very best rate on offer, but looks as if it will always sit up near the top of the best buy tables. At the moment it pays 4.6 per cent.

Trading 212 pays a higher 5.15 per cent, but this account only launched in May this year so we do not know the provider’s track record for maintaining competitive rates.

Coventry Building Society is also a consistently competitive player and has its Four Access Isa (Online). It pays 4.8 per cent, but there is a catch – it limits you to making four free withdrawals a year.

These rates are likely to fall if the Bank of England cuts base rate from its current 5 per cent tomorrow.

If you are happy to lock your money away for a period of time, consider a fixed-rate cash Isa. Deals on cash Isas used to sit below those paid on ordinary non-Isa accounts, but now they pay around the same level.

Good fixed-rate Isas for one year come from Shawbrook Bank (4.47 per cent), while Kent Reliance is just a whisker behind at 4.46 per cent. This will give you just under £450 in interest a year for every £10,000 saved.

If you go for a fixed-rate bond, you can earn a higher £500 with the one-year account with Union Bank of India at 4.8 per cent. Here you are flying very close to the edge as a higher rate payer. 

If you have other savings outside an Isa you will face a tax bill. A 4.8 per cent rate before tax is worth just 2.88 per cent to a higher rate payer and 3.84 per cent to a basic rate payer.

If you would rather put money in each month, regular savings cash Isas are few and far between and the rates are not that good.

The best is 4 per cent from Vernon BS. And it is only open to those who live locally (in areas in the the North-West).

A better deal is to do-it-yourself and set up a regular payment into an easy access Isa.

App-based Trading 212 at 5.15 per cent and Coventry Four Access Isa (Online) let you put in a little as £1 at a time.

£50,000 in savings

If you have £50,000 or more in savings, then you need to keep as much as possible in a mixture of fixed-rate and easy-access Isas to minimise your tax bill.

If your money is in a fixed-rate bond, then you will have to wait for it to come to the end of its term before you can transfer it into an Isa.

Analysis from Shawbrook Bank shows that 900,000 fixed-rate bonds are due to mature before the end of the year.

Put £20,000 into an Isa if you haven’t used your allowance for this tax year (April 6 this year to April 5 next year).

On easy-access money, go for a flexible Isa, a useful tool if you use up the whole of your Isa allowance. 

These allow you to dip into your pot as and when you like and, as long as you put the money back in during the same tax year, it doesn’t lose its tax-free wrapper or use up any more of that year’s Isa allowance.

Not all easy-access Isas offer this, but Ford Money, Coventry Building Society and Trading 212 all do.

Mix and match the best rates – you can have your easy-access Isa with one provider and your fixed-rate with another.

You could then put another £20,000 into an easy-access savings account – you might have to pay tax on some of your interest, but your money will be ready to move into a cash Isa when you get your next £20,000 allowance in April. And from then on it will all be out of the tax man’s reach.

With Atom Saver Reward easy access you’ll earn 4.85 per cent, but the rate drops in any month you make a withdrawal to the equivalent of 3.25 per cent. 

Oaknorth Bank pays 4.82 per cent with no withdrawal restrictions. But the minimum is £20,000, and if your balance drops below this, it may close your account.

Coventry BS pays 4.83 per cent on its Triple Access Saver (Online) and restricts you to three free withdrawals a year. 

A best standard easy-access account where you can put money in and take it out with no restrictions comes from Chetwood Bank at 4.86 per cent and Ford Money at 4.75 per cent.

You could then put £10,000 into an ordinary fixed-rate bond such as the 4.8 per cent with Union Bank of India or Access Bank.

Watch out for fixed-rate bonds that run for longer than one year and pay all the interest in one go at the end of the term instead of in chunks. You could end up with a nasty tax bill.

This is because you can’t carry forward your personal savings allowance on these accounts. For example, on a two-year bond, all your interest will be taxed when the bond matures and is set against that single year’s allowance. So you get one year’s £500 personal savings allowance to offset both years’ interest.

Remember that if you have savings that you do not expect to spend within the next five or ten years, you may be able to invest them rather than leaving them in a savings account. 

You are likely to earn more by investing your money in a portfolio of shares and bonds from all around the world than by earning interest on it in a savings account.

£100,000 in savings

Some people do have this amount in cash – they don’t like the idea of investing in shares when the value of their money can go up and down. Here, you need to make sure you are making use of every tax-break around.

Once again, put £20,000 into a cash Isa now. Then, get ready to shield a further £20,000 in an Isa when your annual allowance resets on April 6 next year. 

Keep this sum in a standard easy-access account so that you can get to it easily when the time comes.

Interest in this easy-access account will count towards your personal savings allowance this tax year but will be free of tax after that.

Put another chunk into a fixed-rate bond. This will use up the remainder of your personal savings allowance. 

Once you have opened a second Isa in April, you will only be paying tax on your fixed-rate bond so your bill should decrease after that.

You may prefer to keep a combination of fixed-rate and easy-access accounts so that you have some money that you can get to in an emergency, and some that is earning a guaranteed level of interest for one year or more.

Other ways to avoid tax is to put some money into Premium Bonds with National Savings & Investments (NS&I). You can put in up to £50,000 in Premium Bonds.

You might not win any prizes, but your money is safe and anything you do win will be tax-free.

It’s worth hanging on to any old Fixed Rate Certificates you may have from NS&I. The two-year rate on offer is 3.65 per cent. 

These certificates are not on general sale, but if you already hold them you can reinvest with NS&I for a further term.

The big plus is that your interest is tax-free. A basic rate taxpayer would need a savings deal as high as 4.56 per cent to receive a rate of 3.65 per cent after tax – assuming they have already used up their personal savings allowance.

A higher rate taxpayer would need a savings deal that pays 6.08 per cent to receive interest of 3.65 per cent after tax – assuming they have used their personal savings allowance. 

And it is probably worth renewing your Index Linked Savings Certificates, too, if you still earn any.

They pay inflation as measured by the consumer prices index plus a smidgen more, and the return is tax-free. 

They may not look too good now that inflation is down at 1.7 per cent but they will have done you proud in the past couple of years when inflation reached 11.1 per cent.

There is talk of inflation ticking up again. And at least your money will keep its value while it’s there.

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