The new personal savings allowance means that savers can now earn up to £1,000 in interest tax-free.
This allowance takes 92 per cent of savers - or nearly 17 million people - out of savings tax altogether. Banks and building societies will stop deducting tax from their account interest.
Basic rate taxpayers will be able to earn up to £1,000 in savings interest tax-free, while higher rate taxpayers will be able to earn up to £500.
Savings income includes interest from bank and building society accounts, as well as accounts with some other providers, such as credit unions and Treasury-backed National Savings and Investments (NS&I).
It also includes some other types of income, such as that from government or company bonds. Money held in tax-free Isas will not count towards the allowance as this cash is already ring-fenced from the taxman.
Chancellor George Osborne said the new allowance lifts 17 million people “out of paying any tax at all on money they’re putting away for their futures”.
The move should bring some welcome relief to savers, who have suffered seven years of the Bank of England base rate being held at its record low of 0.5 per cent.