Fixed rate savings bonds: which year the interest counts

Q: How does this apply to monthly, annual and maturity payments?

How the bond paysWhen the interest is taxed Monthly interest paid out to another accountEach month, as paid, so it falls into whichever tax year each payment date is in Annual interest paid out, or credited to the bond and accessible, even if a penalty appliesEach year, when credited Interest added to the bond with no access until maturityAll of it, in the tax year the bond matures The middle row comes from HMRC's own example in SAIM2440. A saver takes a five year fixed term bond that credits interest annually on 31 December, and can reach the interest and capital before maturity only by paying a penalty. Because the terms allow access, albeit with a penalty, the interest arises and is taxable each year as it is credited. SAIM2440 then says that if the terms did not allow access until maturity, the interest would arise and be taxed at that point. Read the bond's terms and conditions rather than relying on its name. Two bonds marketed as "interest paid at maturity" can be taxed differently if one allows early access and the other does not.

Q: What does that look like in practice?

Illustration only. Priya earns a salary of £49,000 in 2026 to 2027 and has no other income. She has a two year bond paying 4% simple interest on £20,000, maturing in that tax year. Annual interest version. £800 is paid in each of the two years. In 2026 to 2027 her total income is £49,800, below the £50,270 higher rate threshold given by GOV.UK, so her allowance is £1,000 and the £800 is tax free. The previous year's £800 was covered in the same way. Maturity version. All £1,600 arises in 2026 to 2027. Total income becomes £50,600, which crosses the threshold, so her allowance falls to £500. After her Personal Allowance of £12,570, £500 of the interest is taxed at 0%, £770 at 20% (£154) and the last £330 at 40% (£132). Tax on the interest is £286. The total interest is the same. The timing alone creates the tax.

Q: What mistakes do savers commonly make?

Splitting interest by when it was earned. SAIM2440 is clear that interest is not spread over the years it accrued. Counting interest accrued but not yet credited. If a statement shows interest built up but not yet paid or credited, it is not taxable until it is received or made available (SAIM2440). Forgetting joint bonds. GOV.UK says HMRC splits interest on a joint account equally unless told otherwise; see tax on interest from joint accounts. Treating an ISA bond like a taxable bond. GOV.UK confirms interest in an ISA is not usually taxed, so fixed rate ISAs do not use the allowance at all. Not reporting when no letter arrives. GOV.UK says that if you have tax to pay on savings interest and do not receive a letter by 31 March of the following tax year, you must contact HMRC.

Interest on a fixed rate savings bond is taxed in the tax year it “arises”, which HMRC says is when it is paid to you or credited to an account you are free to draw on. Monthly or annual interest you can access is taxed as it is paid, but interest on a bond that locks everything until maturity is all taxed in the year the bond matures, even if it built up over several years. That single payment can use up, or reduce, your Personal Savings Allowance.

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What is the rule for when bond interest is taxed?

Section 370 of the Income Tax (Trading and Other Income) Act 2005 charges tax on the full amount of interest arising in the tax year. HMRC’s Savings and Investment Manual at SAIM2440 explains that interest arises when it is received or made available to the recipient, and that it has been made available if it is credited to an account on which the account holder is free to draw.

SAIM2440 adds that interest can often be treated as arising when it becomes due and payable, but if it is not actually received or credited until later, it does not normally form part of taxable income until then. Interest is not spread back over the period in which it built up: HMRC’s example of £875 of interest arrears received in one year is taxed in full in that year.

So the question for a fixed rate bond is not when the interest was earned, but when the terms of the bond let you have it.

How does this apply to monthly, annual and maturity payments?

How the bond pays	When the interest is taxed
Monthly interest paid out to another account	Each month, as paid, so it falls into whichever tax year each payment date is in
Annual interest paid out, or credited to the bond and accessible, even if a penalty applies	Each year, when credited
Interest added to the bond with no access until maturity	All of it, in the tax year the bond matures

The middle row comes from HMRC’s own example in SAIM2440. A saver takes a five year fixed term bond that credits interest annually on 31 December, and can reach the interest and capital before maturity only by paying a penalty. Because the terms allow access, albeit with a penalty, the interest arises and is taxable each year as it is credited. SAIM2440 then says that if the terms did not allow access until maturity, the interest would arise and be taxed at that point.

Read the bond’s terms and conditions rather than relying on its name. Two bonds marketed as “interest paid at maturity” can be taxed differently if one allows early access and the other does not.

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Why can a maturing bond push me over the Personal Savings Allowance?

The Personal Savings Allowance is an annual amount. For 2026 to 2027 GOV.UK gives it as £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nil for additional rate taxpayers. Interest of £700 a year for three years might be covered every year if paid annually, but £2,100 received in one year at maturity cannot be.

There is also a cliff edge. Under section 12B of the Income Tax Act 2007, if any of your income for the year is higher rate income your allowance is £500 rather than £1,000, and if any is additional rate income it is nil. GOV.UK tells you to add all your interest to your other income to work out your band. A maturity payment that tips total income over the higher rate threshold can therefore halve the allowance and expose part of the interest to 40% tax. The detail of the allowance is in tax on savings interest and the Personal Savings Allowance.

The same lump can also use up the starting rate for savings, which GOV.UK says covers up to £5,000 of interest only where other taxable income is below £17,570. Where income is close to £100,000, the extra interest also counts towards the income that reduces the Personal Allowance, explained in Personal Allowance tapering.

What does that look like in practice?

Illustration only. Priya earns a salary of £49,000 in 2026 to 2027 and has no other income. She has a two year bond paying 4% simple interest on £20,000, maturing in that tax year.

Annual interest version. £800 is paid in each of the two years. In 2026 to 2027 her total income is £49,800, below the £50,270 higher rate threshold given by GOV.UK, so her allowance is £1,000 and the £800 is tax free. The previous year’s £800 was covered in the same way.
Maturity version. All £1,600 arises in 2026 to 2027. Total income becomes £50,600, which crosses the threshold, so her allowance falls to £500. After her Personal Allowance of £12,570, £500 of the interest is taxed at 0%, £770 at 20% (£154) and the last £330 at 40% (£132). Tax on the interest is £286.

The total interest is the same. The timing alone creates the tax.

How will HMRC find out and collect the tax?

GOV.UK explains that after 5 April each year banks and building societies tell HMRC about interest they paid for the previous tax year. If your savings interest is £10,000 or less and you are employed or get a pension, HMRC usually sends a tax calculation and collects the tax through your tax code. If you are in Self Assessment, you report the interest on your return. Interest over £10,000 must be reported on a Self Assessment return, and HMRC will send a notice to file if the bank reports that much.

A maturity payment can distort your tax code. GOV.UK says HMRC adds an estimate of the current year’s interest to your code based on what your bank reported for the previous year. If a large one off maturity payment is used as the estimate for a year in which you will receive little interest, you should contact HMRC to update it. How this works is covered in savings interest in your tax code.

Does the April 2027 change in savings rates affect timing?

Yes. HM Treasury’s policy paper confirms that savings income will be taxed at 22% (basic), 42% (higher) and 47% (additional) for 2027 to 2028, across the UK. From the same date allowances and reliefs will be set against property, savings and dividend income only after other income. A bond that matures on or after 6 April 2027 will have all its locked interest taxed at the new rates, while a bond paying annually will have had earlier years’ interest taxed at the 2026 to 2027 rates. See savings income tax rates from April 2027.

What mistakes do savers commonly make?

Splitting interest by when it was earned. SAIM2440 is clear that interest is not spread over the years it accrued.
Counting interest accrued but not yet credited. If a statement shows interest built up but not yet paid or credited, it is not taxable until it is received or made available (SAIM2440).
Forgetting joint bonds. GOV.UK says HMRC splits interest on a joint account equally unless told otherwise; see tax on interest from joint accounts.
Treating an ISA bond like a taxable bond. GOV.UK confirms interest in an ISA is not usually taxed, so fixed rate ISAs do not use the allowance at all.
Not reporting when no letter arrives. GOV.UK says that if you have tax to pay on savings interest and do not receive a letter by 31 March of the following tax year, you must contact HMRC.

Can I choose a bond to manage the tax?

Where several bonds pay similar rates, choosing monthly or annual interest that you can access spreads interest across tax years and can keep each year within your allowance. Staggering maturity dates across different tax years does the same for bonds that only pay at the end. Neither choice changes the total interest; they change which tax year, and therefore which allowance and rate, the interest falls into.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.