UK savers holding fixed-rate savings accounts with banks like Nationwide, NatWest, Lloyds, Halifax, and Santander have been issued a dire caution. Experts in the financial sector are sounding the alarm for individuals with long-term fixed-rate savings accounts, about the possibility of HMRC knocking with an unexpected tax demand. These banking institutions entice consumers with two to three-year contracts promising significant growth of their capital.

However, the potential danger lies in celebrating the matured savings as HMRC considers the interest on these deposits as annual income, potentially catapulting some past the threshold for tax exemption and prompting a tax obligation. It's essential to note that cash ISAs, which remain untaxed up to £20,000, are not affected by this. Yet, basic-rate taxpayers currently have a limit of earning £1,000 in interest tax-free per annum, while higher-rate taxpayers can earn £500 before taxes kick in. Those paying at the additional rate receive no such personal savings allowance, reports .

Financial pundit Laura Suter, AJ Bell's personal finance expert, warned savers: "Many people won't realise that [fixed rate accounts] could leave them with a tax headache in the future." She further advised: "You are taxed on the interest on your savings when it is accessible by you."

Bringing clarity on how the tax operates, she explained: "So if you pick a fixed-rate savings account that pays out all the interest at maturity, for tax purposes all of that interest will be counted in one tax year. This means that the interest from just one account could take you over your Personal Savings Allowance on its own."

Ms Suter advised that a wiser option may be to select an account that pays out interest either monthly or annually. With further advice, she pointed out: "This means it is spread across different tax years." She also proposed an alternative solution, saying: "Or you can opt for a fixed-term ISA savings account, where you won't pay any tax on the interest."

According to the latest findings by Paragon Bank, there are about 2.4 million fixed-term, non-ISA savings accounts approaching maturity within the next three months. Staggeringly, of these, an estimated 887,000 - or over a third - will gather enough interest to exceed the taxable threshold.