Martin Lewis warns savers about hidden tax traps on accounts over £10,000
Martin Lewis, the well-known Money Saving Expert, has once again raised an important warning that many people with sizeable savings may not be fully aware of. The focus of his advice this time is around the tax rules on savings, particularly for anyone holding £10,000 or more in their accounts. And while this might sound worrying, his explanation makes it clear that most people can still avoid paying tax—if they understand how the system works.
On his BBC podcast, Martin explained that savings themselves are never taxed. What gets taxed is the interest those savings generate. This means the higher your balance and the better your interest rate, the more likely you are to brush up against the thresholds where tax kicks in.
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The rules differ depending on the tax band you fall into. Basic-rate taxpayers, those paying 20% income tax, are allowed to earn up to £1,000 of interest each year tax-free under what’s known as the personal savings allowance . Higher-rate taxpayers, who pay 40%, only get a £500 allowance. And for the very top earners paying 45%, there is no allowance at all.
To put that into context, if someone has money in one of the top easy-access accounts currently paying around 5% interest, a basic-rate taxpayer would need over £20,000 saved to hit that £1,000 tax-free limit. Meanwhile, a higher-rate taxpayer could hit their £500 cap with just £10,000 saved in such an account. Once those thresholds are passed, the interest becomes taxable.
However, Martin was quick to point out that most savers can still legally and easily avoid tax. One of the best tools for doing so is the cash ISA. With these accounts, any interest earned is entirely tax-free, and it doesn’t count towards the personal savings allowance. People can put away up to £20,000 per tax year in a cash ISA, with some of the best-paying options offering around 4.7% interest while still allowing easy access to the money.
Interestingly, Martin also touched on the government’s decision not to slash the ISA allowance from £20,000 down to £4,000, a move that had been speculated earlier in the year. That change would have dramatically limited the usefulness of ISAs, but with the cap left untouched, savers can continue to make the most of this tax-free wrapper.
For younger people in their 20s and 30s, Martin gave a slightly different perspective. He suggested that if spare cash is available and not needed in the near future, some of it might be better off invested rather than just left in savings. Over the long term—five, ten, or even fifteen years—broad investment funds often deliver higher returns than savings accounts, though of course with added risk.
So the takeaway from Martin’s advice is simple but powerful: understand your personal savings allowance, make smart use of cash ISAs, and consider whether investments could play a role if you have money you won’t need soon. By doing this, the majority of people will avoid paying unnecessary tax on their hard-earned savings.
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