Is Savings Interest Taxable?
Updated
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Savings accounts are slowly but surely starting to pay higher APY on deposits. This is due to a combination of the rising popularity of high-yield online savings accounts and the rise in interest rates.
While this is certainly a good thing for savers, it does have its potential drawbacks. One big potential downside is the tax implication of receiving a larger amount of interest income. In this article, we'll explore the tax laws that might apply to interest you receive on your savings account, and whether you may have to pay tax on it or not.
The short answer is yes, interest you earn on a savings account is taxable income. The IRS considers most interest income to be a type of ordinary income and is taxable at the same marginal tax rate (tax bracket) as your earned income.
This includes, but is not necessarily limited to:
There are some forms of interest income that are not taxable, such as interest from municipal bonds. But when it comes to savings accounts, there are no such exemptions.
Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.
| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
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= Best
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up to 3.80%
Rate info
SoFi members who enroll in SoFi Plus with Eligible Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or SoFi members with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. If you have satisfied Eligible Direct Deposit requirements for our highest APY but do not see 3.80% APY on your APY Details page the day after your Eligible Direct Deposit arrives, please contact us at 855-456-7634. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Min. to earn: $0
|
New customers can earn up to a $300 bonus with qualifying direct deposits!
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Open Account for SoFi Checking and Savings
On SoFi's Secure Website. |
Open Account for Western Alliance Bank High-Yield Savings Premier
On Western Alliance Bank's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
4.30%
Rate info
The annual percentage yield (APY) is accurate as of May 2, 2025 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.
Min. to earn: $500 to open, $0.01 for max APY
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N/A
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Open Account for Western Alliance Bank High-Yield Savings Premier
On Western Alliance Bank's Secure Website. |
Open Account for Barclays Tiered Savings
On Barclays' Secure Website.
Rating image, 5.00 out of 5 stars.
5.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
4.00%
Rate info
Balances less than $250,000 earn 4.00%, and balances greater than $250,000 earn 4.20%.
Min. to earn: $0
|
N/A
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Open Account for Barclays Tiered Savings
On Barclays' Secure Website. |
For the most part, interest income is taxed as ordinary income, which means it is taxed in the same manner as income from a job. Depending on your income, tax deductions, and other variables, the income tax brackets (marginal tax rates) currently range from 10% to 37%.
Interest is reported to the IRS on Form 1099-INT, which is issued by the institution (such as your bank) that pays you interest. Box 1 of this form will have all of the interest income you were paid during the year. When you fill out your tax return each year, interest income is reported in Schedule B: Interest and Ordinary Dividends. But it's worth noting that if you use tax preparation software to complete your return, the information you enter will automatically be placed on the correct form.
LEARN MORE: Is the Interest Rate for Savings Accounts Monthly or Yearly?
Technically, the IRS requires you to report (and pay tax on) all of your interest income. Having said that, there are a couple of things to know.
First, the institution that pays you interest (your bank) is only required to send you a Form 1099-INT documenting the income if they paid $10 or more during the tax year. A copy of this form will also be sent to the IRS. So, if your bank account paid you $2 in interest last year, there won't be any tax documentation on it. To be sure, we're not telling you not to report your savings interest, but $10 is the threshold where your bank is required to report it.
According to the IRS, "You must report all taxable and tax-exempt interest on your federal income tax return, even if you don't receive a Form 1099-INT or Form 1099-OID." If you don't receive a Form 1099-INT for your savings account, you can use your statements to figure out how much interest you received. So, just to be perfectly clear, if you earned just a few cents of interest from your savings account, you're still legally required to report it.
It's also worth pointing out that if you don't have any taxable income, your savings interest may not be taxable. For example, if your savings interest plus all of your other income is less than your applicable tax deductions, you likely won't have to pay any tax on it.
The other caveat is that you don't have to pay tax on interest you earn on a retirement account. For example, if you have $20,000 in cash in your traditional IRA and your broker pays you $50 in interest on that money this year, it won't be taxable until you withdraw the money from the account. It's fairly common to open CDs or other interest-bearing deposit accounts within retirement accounts, and these can be a good way to earn savings interest without having to pay tax.
If you receive more than $10 in savings interest from your bank, the answer is yes, unless the interest was paid within a retirement account, or you don't have any federal income tax liability at all. Not only will you be issued a tax document for the interest, but a copy will be sent to the IRS as well. In other words, the IRS will know how much interest you've been paid.
If you receive less than $10, you are still required to report the interest you receive and pay any applicable tax on it. However, it's completely on you to report it at that point, as there will be no tax documentation issued by your bank.
LEARN MORE: How to Calculate Interest Rate on Savings Accounts
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Motley Fool Money's top savings account picks can earn you more than 10x the national average savings account rate.
Sort of. If you open an interest-bearing account within a retirement account, you won't have to pay tax on it. But in general, savings account interest is always taxable at your ordinary income rate, and is reported to the IRS if you earn $10 or more during the year.
Interest is reported to you and the IRS from your bank on Form 1099-INT. If your interest is paid in a brokerage account, it may be reported on a consolidated Form 1099, which can include things like dividend income and profits from stock sales.
With your tax return, interest income is reported on Schedule D. And the IRS requires you to report all of the interest income you receive during the year, even if you didn't receive a Form 1099 documenting it.
It depends. The only ways your savings account interest is usually tax-free is if it is paid within a retirement account like an IRA, or if you have no federal tax liability at all because your total income is less than your tax deductions. The threshold where your savings interest is reported to the IRS is $10, but it's important to realize that you're technically required to report and pay tax on all interest you receive, even if it's below this threshold.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page. APYs are subject to change at any time without notice.
