Financial expert Martin Lewis has warned that people with more than £10,000 in savings accounts could face unexpected tax bills on the interest they earn.
Speaking on his BBC Podcast, the Mr Lewis stressed that tax applies to interest generated on savings, not the money itself.
"The more you earn and the more savings you have, the more likely you are to be taxed on your interest," he said.
"You don't pay tax on savings, it's the interest you earn on savings that are taxable."
The warning comes as interest rates on savings accounts remain high, pushing more savers above tax-free thresholds.
Mr Lewis noted that while most people can avoid paying tax on savings interest, it requires making informed decisions about where and how money is saved.
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The personal savings allowance depends on income tax brackets.
Basic rate taxpayers, paying 20 per cent income tax, can earn up to £1,000 a year in interest across all accounts without being taxed.
Those in the higher rate bracket, paying 40 per cent income tax, have an allowance of £500 per year.
"If you are a basic rate taxpayer, a 20 per cent rate taxpayer, you are allowed to earn £1,000 of interest in all savings accounts tax free, above £1,000 interest it is taxed.
The warning comes as interest rates on savings accounts remain high, pushing more savers above tax-free thresholds
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"If you are a higher rate 40 per cent taxpayer, you're allowed to earn £500 interest tax free," Mr Lewis explained.
Anyone earning above £125,000 annually has no personal savings allowance, meaning all interest becomes taxable.
With current savings rates at around 5 per cent, a basic rate taxpayer would need about £20,000 in savings to go over their allowance.
Higher rate taxpayers would pass the limit with around £10,000 in a high-interest account.
Higher rate taxpayers would pass the limit with around £10,000 in a high-interest account
| GETTYCash ISAs offer tax protection for savers approaching these limits. They allow deposits of up to £20,000 each year, with all interest remaining tax free regardless of income.
"A cash ISA is just a savings account where the interest is never taxed and it doesn't count to your £1,000 a year, so it's an extra allowance on top," Mr Lewis said.
He pointed out that leading easy-access ISAs currently pay around 4.76 per cent, while still allowing withdrawals at any time.
The combination of personal savings allowances and ISAs means most savers in the UK can avoid paying tax on their savings.
"With a combination of the personal savings allowance and cash ISAs, the vast majority of people don't need to be paying tax on their savings," Mr Lewis said.
Speculation that the ISA limit would be cut from £20,000 to £4,000 proved unfounded when Chancellor Rachel Reeves decided not to introduce the change.
For younger savers, Mr Lewis suggested that traditional savings accounts may not always be the best choice for long-term wealth building.
He advised that money not needed for five, ten or fifteen years could be better placed in investments.
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Mr Lewis added that diversified investments typically outperform savings over long periods
| PA"If you are 20 or 30 and you have some spare cash that you can put away that is not going to be imminently usable for you and you're not going to need it for 5, 10 or 15 years, if you put it in a wide spread of investments — could be a global index tracker fund," he said.
Mr Lewis added that diversified investments typically outperform savings over long periods.
"On the balance of probabilities, that will substantially outperform putting your money in savings, and you will be better off doing so," he said.
He cautioned, however, that this only applies to money people can afford to risk, noting that investments carry volatility unlike guaranteed savings returns.