Chancellor George Osborne's Budget of 2014 announced that the UK government was cutting their 10% starting rate of tax for savings income to 0%. This rule change was probably due to an ongoing historically low rate of interest on savings income; which was initiated by the 2007 banking crisis and the subsequent low Bank of England base rate. From the 6th of April 2016, all savings interest in the UK was paid gross: which means no tax is taken off it by the banks. Due to the current low rate of interest offered on most UK current accounts (2018), most people will not be paying tax on their savings, due to the amount of funds that needs to be saved to exceed the personal savings allowance (PSA).
UK savers are saving more coins due to the UK government cutting their 10% starting rate
Since the 6th of April 2015, the UK Government implemented the three following tax-free saving rules:
Due to the fairly complex nature of the above rules, and how they apply to individual circumstances, it is best to check the government's official website: https://www.gov.uk/apply-tax-free-interest-on-savings
ISAs: The cutting of the 10% starting rate will benefit those on a lower income and low savings, so what are the tax free options for those on a high income and high savings? the most obvious answer is the Cash ISA. Individual Savings Account (ISAs) were introduced in 1999, and replaced PEPs and TESSAs. There is a range of ISAs: Share ISA, Cash ISA, Junior ISA and Lifetime ISA. The Cash ISA is the product which can be used by UK citizens to place their sterling reserves into. The amount of cash that can be placed into a Cash ISA (tax free) is limited by a yearly amount (tax year from 6 April to 5 April of the following year) and has changed since 1999: in 1999 it was £3000; in 2008 it increased to £3600; in 2010 it increased to £5100; and by 2018 it was increased to £20000. Once the money has been invested in a Cash ISA, it will stay in a Cash ISA tax-free -- we assume forever, unless the UK Government alters the scheme -- so, over a decade, it will have been possible to invest over £50,000 tax-free into a Cash ISA. It is also possible to transfer Cash ISA deposits to another provider; so savers can find a superior interest rate and maintain their deposits tax-free status.
NS&I: Another financial product that is tax-free is provided by National Savings and Investments. The NS&I provide a number of tax-free savings products, such as:
The NS&I's Direct Saver product allows customers to save up to £2 million tax free and their Income Bonds product allows customers to save up to £1 million tax free. NS&I Index-linked Savings Certificates and Fixed Interest Savings Certificates proved especially popular -- they were a good way to rise savings above the Retail Price Index (RPI) inflation rate -- but ended up being removed; these certificates required customers to save over 5 years and matured from 2016.