Savings tax hikes mean an Isa is more important than ever: Here's how to pick one... and the sting you could face if you don't

Products featured in this article are independently selected by This is Money's specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.The Government has announced a hefty four percentage point increase on tax on savings interest from April 2027.Rates were originally set to be hiked by two percentage points, but at the Autumn Budget on October 28 the Chancellor announced a further bump.This means that interest earned above the personal savings allowance will be taxed at 24 per cent, 44 per cent and 49 per cent for basic, higher and additional rate taxpayers respectively.Today, those rates are 20 per cent, 40 per cent and 45 per cent. It is easier than ever for savers to breach their personal tax-free allowance, as interest rates on cash savings accounts are currently at their highest levels in years – with all the top fixed-rate bonds sitting above 5 per cent.We crunch the numbers to reveal exactly how easily your personal allowance will be breached, depending on the size of your savings pot – and the tax you can expect to pay under the new rates.We also look at all the ways you can shield your savings from tax. Interest rates are high - meaning savers can more easily get caught by a tax trapWill your savings breach the tax threshold? The Personal Savings Allowance is £1,000 for basic rate taxpayers, who have an income between £12,571 and £50,270, and £500 for higher-rate taxpayers, who have an income between £50,271 and £125,140. It means they must pay tax on any interest earned above that level. Additional rate taxpayers, those earning £125,140 or more, pay tax on all their savings interest. The interest thresholds can be easily breached at current interest rates.And now that tax on interest is rising, it becomes much more important to protect as much of your money as possible within a tax-free Isa.It's possible to get a savings rate of at least 4.5 per cent within an easy-access or fixed savings account. Here's how much interest you would earn in a year on different sized savings pots - and how much tax you would pay on it from April 2027. Tax on savings interest: How much could YOU pay? Savings pot Annual interest (4.5%) Basic rate tax (24%) Higher rate tax (44%) Additional rate tax (49%) £10,000 £450 £0 £0 £220.50 £20,000 £900 £0 £176 £441 £25,000 £1,125£30£275 £551.25 £30,000 £1,350 £84£374 £661 £40,000 £1,800 £192 £572 £882 £50,000 £2,250 £300 £770 £1,102.50 £100,000 £4,500 £840 £1,760 £2,205 £200,000 £9,000 £1,920 £3,740 £4,410 £500,000 £22,500 £5,160 £9,680 £11,025 Source: This is Money Basic rate taxpayers get a personal savings allowance of £1,000. Assuming a savings rate of 4.5 per cent, they will start paying tax on savings interest on unshielded pots of around £22,220.Meanwhile, higher rate taxpayers are looking at paying tax on the interest earned on pots of around half that – £11,110.Additional rate taxpayers don't get a personal savings allowance at all, so every bit of the interest they earn is taxed.Why opening a top Isa is more important than ever Everyone gets a £20,000 tax-free allowance each year, to put into an Isa. They can split it how they like between cash and stocks and shares, and interest or returns earned will not be subject to the new tax hike. It means that if you haven't yet used your £20,000 Isa allowance, it is more important than ever to do so. The allowance isn't carried over so if you don't use it, you lose it. In great news for savers – and a victory for our hands off our cash Isas campaign – the Government has confirmed that the cash allowance won't be cut to £12,000 for the under-65s from April 2027.Which Isa should you choose? If you think you'll need to withdraw your money, it's a good idea to go for an easy-access cash Isa in the first instance.The best rate on an easy-access cash Isa is currently offered by Trading 212*, at 4.87 per cent.However, this includes 1.27 per cent bonus rate for 12 months for new customers, so the underlying rate is just 3.6 per cent and it will revert to that after the bonus period. Many of the top easy-access Isas include this bonus rate element. If you go for one of these, be sure to compare your options after the year's up.For an account that has no bonus rate, have a look at Hargreaves Lansdown's cash Isa*, which is currently being offered at 4.52 per cent.You can get better rates if you're happy to lock your money away as part of a fixed deal, for example for one, two or five years. The top one-year fixed Isa is being offered by Zopa Bank at 5 per cent, and you can open this with just £1.A top two-year fix is being offered by Vanquis Bank at 5.10 per cent, although you need at least £1,000 to open the account.However, there are penalties for withdrawing money early and you may lose some or all of the interest - so only use a fixed account if you're sure you have a large enough emergency fund elsewhere. > Read more: Five of the best cash IsasWhat about a stocks and shares Isa?If you're considering a fixed cash Isa and you don't need access to your money for at least five years, it's worth looking at a stocks and shares Isa.> Read more: The best stocks and shares Isas, reviewedA five-year time horizon is important when investing, because you'll see short-term fluctuations in the value of your funds – there'll be periods of good performance and periods where it drops.Keeping your money invested over the long term gives it a better chance of riding out these fluctuations and growing on average.Investing also has a better chance over the long term than cash of beating inflation – so you can buy more with your money when you eventually cash out.How else can you protect your money from tax?When you've maximised your Isa allowance, it might feel like there's nowhere else to turn for tax-free savings.But you can look at Premium Bonds, which now have an annual 4.35 per cent fund prize rate.You can stash between £25 and £50,000 in Premium Bonds, giving you the chance of winning tax-free prizes from £25 to £1million each month.The odds are 21,000 to one for every £1 in the draw.Finally, you could also look at your pension situation and retirement planning.Saving into a pension is very tax-efficient, with tax relief on contributions worth up to 100 per cent of your annual earnings.There's also no capital gains tax or dividend tax due on your investments within a pension.You won't get access to your money until you're at least 55 – rising to 57 from April 2028.But it might be worth exploring how much extra you could divert to your pension if you want to protect as much of your money as possible from tax.SAVE MONEY, MAKE MONEYUp to £300 cashbackUp to £300 cashback£25-£300 cashback on at least £3004.87% cash Isa4.87% cash IsaTrading 212: 1.27% fixed 12-month bonus£2,500 cashback£2,500 cashback£250-£2,500 cashback when opening SippUp to £150 cashbackUp to £150 cashbackOpen a savings account with at least £5,000Welcome bonusWelcome bonusGet up to £200 when you invest £100Affiliate links: If you take out a product This is Money may earn a commission. 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