With interest rates still sitting near historic highs, and a long road until they start to drop back to pre-pandemic levels, for some people it might be time to assess the state of play in their savings, and whether or not any tax is owed on the interest.

Despite the fact that the Bank of England has begun cutting rates, the base rate currently stands at 5% — a figure which should carry through to retail savings accounts.

Meanwhile, inflation has pushed up wages, potentially pushing people into higher tax bands than they were previously.

The UK household savings ratio — the percentage of a household's disposable income that is saved — has crept up in recent quarters as cost of living pressures bite and more favourable rates are offered on bonds and savings accounts.

Read more: What is the 50/30/20 budgeting rule and does it work?

Here are some things to watch for when managing tax and savings, according to the experts, so you can get the most milage possible out of your rainy day pot.

Tax-free allowances

A key thing to watch for when managing your savings is the limit on your personal savings allowance (PSA). This lets you earn interest on your savings without paying tax on that interest, and depends on the rate of income tax you pay.

"The personal savings allowance is still set at the same level as when it was first introduced in 2016, so savers are still likely to find themselves liable for tax on the interest they earn, particularly when you consider income tax thresholds have been shoved in the deep freeze until 2027-28," said Alice Haine, personal finance analyst at Evelyn Partners.

"Frozen personal tax thresholds mean millions more taxpayers are finding themselves dragged into paying higher rates of tax as inflation pushes up their wages."

Basic-rate taxpayers, who pay a 20% tax rate, can earn up to £1,000 before they start paying tax. Those on a higher rate (40%), are limited to £500 before paying tax on savings. Additional rate tax payers — those paying 45% — do not get an allowance, unless they're opting for specific savings products.

Those earning below the taxpaying threshold of £12,570 a year can stand to earn as much as £18,570 in savings interest tax-free. That comes with a lot of variables though, such as how much income is coming from your pension versus from working.

Read more: How to manage your finances like an Olympian

Once you earn more in interest on your savings than the allowance you’ll pay tax on the interest at your income tax rate. For example, a basic-rate taxpayer who gets £2,000 in savings interest in a year from non-ISA accounts will get £1,000 tax free and will have to pay 20% tax on the remainder, equating to £200 in tax.

“Savers who are near the next income tax bracket also need to be careful their savings interest doesn’t tip them into the next tax bracket," warned Laura Suter, director of personal finance at AJ Bell. "This would mean they lose some of their tax-free personal savings allowance but also they have to pay a higher tax rate on the savings interest.

"For example, someone who goes into the higher-rate tax band would see their personal savings allowance cut from £1,000 to £500 and would have to pay 40% tax on the savings interest falling into this band, rather than 20%.

"Equally someone who tips into the additional rate tax bracket would get no Personal Savings Allowance and would pay 45% on their savings income in this band.”

Is my tax-free allowance for all my savings accounts?

The PSA covers all non-internet savings account (ISA) savings and is per person, rather than per account.

It used to be the case that, for most people, the PSA meant that all their savings were tax-free.

Since rates have risen considerably over the last couple of years, this is no longer true.

Read more: Why hybrid workers are stressing out about the 'coordination tax'

According to the government website, it covers all interest you get from savings in bank and building society accounts, investments in investment trusts and funds, peer-to-peer lending, certain bonds and credit union accounts.

Any money held in ISAs is protected from tax and the interest you make on it doesn’t count towards your PSA.

"Other ways to protect your savings from tax include topping up your private pension or stashing up to £50,000 in NS&I’s Premium Bonds," said Haine.

Does it include stocks and shares ISAs and LISAs?

Any money held in ISAs is protected from tax and the interest you make on it doesn’t count towards your PSA.

The annual Individual Savings Account (ISA) allowance for the 2024–2025 tax year is £20,000. This limit applies to all ISAs you have, regardless of how many. You can use the allowance to pay into cash ISAs, stocks and shares ISAs, or other types of ISAs.

Do I have to fill out a tax return?

Unless you have other income as a self-employed person, you will not have to fill out a self-assessment tax return — hurrah!

The banks will notify HMRC of the annual interest received and your records will be updated based on this.

Any charges will be notified by way of a calculation and tax code change.

Download the Yahoo Finance app, available for Apple and Android.