How to Save More in 2026 After the Winter Budget 2025

Each time there is a budget announcement by the government there is panic among people!

The instant reaction to it is – I will be earning lesser and paying more taxes.

But is that the reality?

In this article I want to talk about one specific change in the budget – reduction of cash ISA deposit limits to £12,000 a year from April 2027, what you should be worried about and what you shouldn’t be worried about.

Currently HMRC allows you to deposit upto £20,000 a year into any combination of ISAs. 

Firstly, what do we mean by ‘saving’? Savings is a way to park money on a regular basis for a short-term purpose – a purpose you will have to fulfil within few months – 5 years.

What are ISAs? They are Individual Savings Accounts you can access through your bank accounts, allowing you to save money and earn interest. The interest you earn from ISA is fully tax free. 

Hence ISA, is a great place to park your money and plan your savings. And putting aside upto a £20,000 a year is approximately £1600 a month which is a great starting point!

There are a variety of ISAs – Cash ISAs and Stock and shares ISAs being the most common ones. However, it is worthy to be aware that Stock and shares ISAs carry market risk and hence it is only wise to choose a S&S ISA if you plan to park that money for a period of 5 years or more.

Having said all of this I also have to point out other way you can save – Your bank savings account. 

Yes, every bank offers a verity of savings you can park your money into and earn interest. But the catch here is, interest you earn from savings account is taxable!

So, does that mean, savings accounts is a no go?

Absolutely not! It is definitely an option for you to consider and let me tell you why.

1. If you earn £17,570 or less a year – you get a to earn tax free interest from savings account of upto = £18,570 minus your non saving interest income. 

   • Example 1 – If you have a salary of £6500 a year, your tax-free interest allowance will be = £12,070 (£18,570 - £6500). Considering an average interest rate offered for savings account at 4.5%, you can save upto £268,000 a year into a savings account beyond the current ISA limit of £20,000 still not paying any tax on interest earned!

   • Example 2 – If you have a salary of £14,500 a year, your tax-free interest allowance will be = £4070 (£18,570 - £14,500). Considering an average interest rate offered for savings account at 4.5%, you can save upto £90,400 a year into savings account beyond the current ISA limit of £20,000 still not paying any tax on interest earned!

   • Now I would truly be amazed if you use up all the ISA limit of £20,000 and then go beyond saving £90,400 a year! Because only then should you be worried about tax on interest from savings accounts.

2. If you earn £17,571 - £50,270 a year (most self-employed and working professionals between the ages of 25-40) – you get a to earn a tax-free interest from savings accounts of upto = £1000. Anything beyond you pay tax at 20%.

   • Considering an average interest rate offered for savings account at 4.5%, you can save upto £22,000 a year into savings account beyond the current ISA limit of £20,000, still not paying any tax on it.

3. If you earn £50,271 - £125,140 a year (most self-employed and working professionals between the ages of 25-40) – you get a to earn a tax-free interest from savings accounts of upto = £500. Anything beyond you pay tax at 20%.

   • Considering an average interest rate offered for savings account at 4.5%, you can save upto £11,000 a year into savings account beyond the current ISA limit of £20,000, still not paying any tax on it.

4. It is only if your annual income is beyond £125,141, you get no tax-free interest allowance a year. And all you can save tax free is the ISA limit of £20,000 (until April 2027) and anything you save beyond this into savings accounts; you pay tax at 45% on the interest earned. 

I am sure most of you feel relieved to realise you need not be worried about paying taxes on any interest income you might earn!

So, rather than being too consumed and concerned about taxes, it would be worthy to see how you can utilise all the tax-free interest allowance you have and start saving! 

Pledge for 2026? Start saving!

Written by
Mrudula Muralidharan
Founder and Finance Coach
Million Goals