Experts warn that more people will have to pay tax on their savings due to rising interest rates. Around 2.7 million people are expected to be affected by savings tax this tax year, according to a Freedom of Information (FOI) request to HMRC by finance firm AJ Bell. This number represents an increase compared to the tax authority's previous estimate. AJ Bell said this increase was due to the Bank of England's base interest rate increasing 14 times in a row over the past two years. The Bank of England's latest base rate is 5.25%, significantly higher than 0.1% in December 2021. As interest rates rise, savings rates also rise, although this That sounds great. AJ Bell said it also increases tax bills as more people reach their tax-free savings limit. According to the company, higher rate taxpayers with cash in the best easy-access account in December 2021 could have up to £77,000 before reaching the tax-free limit. Yesterday, the limit has been reduced to £9,525 and they will only pay tax on cash savings worth £8,265 under the current best one-year deal. Basic rate taxpayers could have had £154,000 in the most accessible account two years ago before being taxed – this is now just over £19,000. Laura Suter, head of personal finance at AJ Bell, warned that many people - particularly average earnings with emergency savings pots - may be paying tax on their savings for the first time. There is a personal savings allowance which lets you earn a certain amount of interest before you start to pay tax. The personal savings allowance for taxpayers at 20 sic is £1,000 and for taxpayers at over 40 sic the allowance is £500. Additional rate taxpayers – that is, those with a salary above £125,140 – do not get tax relief. Laura explains that when the base rate is 0.1% in December 2021, a base rate taxpayer will need to have £1 million in savings to reach the tax-free limit of £1,000 board. However, with interest rates "shot up" and benefits remaining "stubbornly still" many people will now be caught off guard. This is because the freeze on income tax brackets has pushed many Britons into higher tax brackets. Laura said: "To add insult to injury, lots of taxpayers will have been pushed into the next tax bracket over the past two years, thanks to frozen income tax bands. This means they will have seen their Personal Savings Allowance cut from £1,000 to £500, if they’ve moved from basic rate to higher rate tax. Or they will have seen the allowance wiped out entirely if they’ve been pushed into the additional rate bracket." Laura said many Brits may want to take a look at opening a cash ISA to avoid having to pay tax on their savings. A cash ISA is a savings account you don't pay tax. You can put up to £20,000 into ISA accounts each tax year. Although, Laura said savers need to assess what is the best option for them. She added: "The annual ISA limit of £20,000 is generous, but if you’ve spent years accumulating savings outside of an ISA you might find you hit that limit pretty quickly when you want to transfer your money into the tax efficient account. Cash ISAs also often pay lower interest rates, so savers will need to do their sums to work out whether it’s worth picking a higher paying non-ISA account and paying tax on their savings interest, or putting it in an ISA and accepting a lower rate."