Personal savings shake-up

Many savers will no longer have to pay tax on the interest they earn when a shake-up comes into force this week.

From Wednesday, the new personal savings allowance will be introduced, meaning that banks and building societies will stop deducting tax from account interest.

Basic rate taxpayers will be able to earn up to £1,000 in savings interest tax-free, while higher rate taxpayers will be able to earn up to £500.

Savings income includes account interest from bank and building society accounts, as well as accounts with some other providers, such as credit unions and Treasury-backed National Savings and Investments (NS&I).

It also includes some other types of income, such as that from Government or company bonds.

Money held in tax-free Isas will not count towards the allowance as this cash is already ring-fenced from the taxman.

The move should bring some welcome relief to savers, who have suffered the effects of more than seven years of the Bank of England base rate being held at its record low of 0.5%.

According to financial website Moneyfacts.co.uk, savers are facing the worst Isa season on record.

Moneyfacts said the average Isa now pays just 1.29% in interest, a fall from 1.45% a year ago and 2.39% five years ago.

Many current accounts pay attractive rates by comparison.