Nine out of 10 savers haven’t had to worry about paying income tax on the interest from their cash deposits for years, but that has suddenly changed as savings rates rocket.

Under the personal savings allowance (PSA), launched in 2016, basic rate 20 percent taxpayers pay no income tax on the first £1,000 of interest each a year, while higher rate 40 percent taxpayers can earn £500 free of tax.

When even the best savings accounts only paid around one percent, a basic rate taxpayer could have £100,000 in the bank before breaching the PSA.

Yet savers who take out a new best buy two-year bond just launched by Vanquis Bank could pay a tax bill on a much smaller holding.

The challenger bank’s new two-year fixed rate bond pays 6.2 percent a year on a minimum opening balance of £1,000 up to a maximum of £250,000.

It’s the highest fixed-rate bond return today.

However, a basic rate taxpayer only needs to put £16,150 into the account to exceed the PSA and face a shock income tax bill. That falls to just £8,075 for a higher rate taxpayers (additional rate 45 percent taxpayers don’t get a PSA).

That’s a huge difference in a short period and will surprise many as research from Yorkshire building Society shows that two in five savers have no idea how the PSA works.

Last year, almost 1.8million paid £3.4billion tax on their savings and the bill is set to top £6.6billion this year, according to data obtained by investment platform AJ Bell.

Many have been caught as interest rates rise and the PSA remains frozen, said AJ Bell head of personal finance, Laura Suter. “With inflation so high savers aren’t even making a real return on their money, yet are still being taxed.”

Worse, the bill often comes out of the blue. “Until a brown letter lands on their doormat some people won’t even realise they owe tax on their savings interest.”

PSA thresholds haven't changed since launch and former pensions minister turned campaigner Baroness Ros Altmann has called for them to be increased but savers should also take action to cut their tax exposure today.

The first step is to make sure you are getting a market-leading return in the first place, said Alice Haine, personal finance analyst at wealth platform Bestinvest. “Easy access savings rates now pay more than four percent and fixed-term accounts over six percent, so aim for that.”

If the interest pushes you over the PSA consider shielding some of your savings inside the £20,000 Isa allowance.

Cash Isas have fallen out of favour since the PSA was launched as they pay slightly less than standard savings accounts, but there are some good deals to be had.

NatWest and RBS now offer two-year fixed-rate cash Isas paying a market-leading 5.90 percent a year.

That's only 30 basis points less than Vanquis Bank’s two-year fixed-rate bond.