A year on from the launch of the Personal Savings Allowance (PSA) only one in six adults have started to save or increased the amount they save, new research* for the Nottingham Building Society (The Nottingham) shows.

Its study found that only 17% of adults have taken advantage of the new rules with around two-fifths of them first-time savers. One age group where the PSA has proved to be popular is with 18-24 year olds – with more than a third (40%) of them starting or increasing saving thanks to the new rules.

But more than half (52%) of adults are still not aware of the allowance enabling basic-rate taxpayers to earn £1,000 in interest tax-free a year and higher-rate taxpayers to earn £500 a year which came into effect from April 2016. The survey found that the over-55s were the group most aware of the new benefits – around 58%, with the figure rising to 62% of those over 65.

Savings levels rose among those aware of the Personal Savings Allowance. More than a third of them are saving more with average monthly savings hitting around £85 or more than £1,000-a-year. Around one in eight said they are saving more than £200 a month extra as a result. Half of those between 18 and 24 said they were saving up to £50 a month, 30% said they saved between £50 and £100 and 10% said they save between £150 and £200 a month.

Jonathan Cartlidge, Senior Product Manager at the Nottingham Building Society (The Nottingham), said: “This survey reflects the difficulties that many people face in making a regular commitment to save and it is heartening to see young people really making an effort. We know the sooner you start to save, the better you will prepare for life’s milestones.

Savers have been so desperate to find a decent return on their nest egg that many have, in recent years, made use of generous ‘in credit’ rates available on bank current accounts.

When Tesco Bank announced in February this year that it was guaranteeing the 3% interest rate on the first £3,000 on its bank account for at least two years, it created a problem it hadn’t reckoned on.

Experts were encouraging their readers to exploit this ‘savings loophole’ – particularly as many rivals including Santander, Lloyds, Halifax and TSB had already slashed credit interest deals and rewards offers in the months leading up to this move.

Unfortunately demand was so great that Tesco Bank had to put a freeze on accepting new applications for it’s current account due to the influx of savers looking for a market leading deal – after all 3% and instant access is an amazing deal in today’s depressed savings market.

So today Tesco Bank has announced that anybody wishing to take advantage of the 3% interest rate will need to use the account for what it was intended – i.e. a bank account rather than simply a bolt hole for £3,000 worth of savings.

Customers will now have to deposit a minimum of £750 per month and have three direct debits set up on the account (excluding payments to Tesco Savings) if they wish to enjoy the 3% in credit interest rate.

Personal Finance Expert Andrew Hagger of Moneycomms said: “I’m in agreement with what Tesco Bank has done to close this ‘loophole’ as current accounts are designed to help us manage our day to day finances and not act as a handy savings account for those who find themselves poorly served by the wider savings market.”

Hagger added: “I can hear the cries of despair from the loophole exploiters from here, but after all is said and done it’s a common sense move from Tesco Bank.”