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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 | Bonus | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website. 
4.90/5
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 |
up to 3.80%
Rate info
Earn up to 3.80% Annual Percentage Yield (APY) on one SoFi Savings account with a 0.70% APY Boost (added to the 3.10% APY as of 5/28/26) for up to 6 months. Open your first SoFi Checking and Savings account and receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 12/31/26. Rates are variable, subject to change. Terms apply at sofi.com/banking#2. SoFi Bank, N.A. Member FDIC.
Min. to earn: $0
|
Earn $50 or $400 and +0.70% Boost on Savings APY with direct deposit. Terms apply.
Earn up to 3.80% Annual Percentage Yield (APY) on one SoFi Savings account with a 0.70% APY Boost (added to the 3.10% APY as of 5/28/26) for up to 6 months. Open your first SoFi Checking and Savings account and receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 12/31/26. Rates are variable, subject to change. Terms apply at sofi.com/banking#2. SoFi Bank, N.A. Member FDIC. |
Open Account for SoFi Checking and Savings
On SoFi's Secure Website. |
Open Account for EverBank Bank High-Yield Savings Account from Raisin
On Raisin's Secure Website. |
4.15%
Rate info
Earn a guaranteed 4.15% APY for 90 days. After that, your savings keep growing at a competitive standard rate -- currently 3.95% APY (subject to change). No minimum account balance required. Deposit or withdraw at any time with no additional fees.
Min. to earn: $1
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Earn up to $1,200 when you sign up and fund your account using code SUMMER26.¹
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Open Account for EverBank Bank High-Yield Savings Account from Raisin
On Raisin's Secure Website. |
Open Account for CIT Platinum Savings
On CIT's Secure Website.
4.80/5
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 |
up to 4.10%*
Rate info
4.10%* APY for balances of $5,000 or more; otherwise, 0.60%* APY
Min. to earn: $5,000
|
Earn up to 4.10% APY with promo code CITBoost
With the 6 month Boost limited-time offer, you earn 4.10%* APY on balances over $5,000 (balances less than $5,000 earn 0.60%* APY). After the boost is complete you will continue to earn standard rates -- 3.75% APY for balances over $5,000 (balances less than $5,000 earn 0.25% APY). The minimum to open a Platinum Savings account is $100. Member FDIC. No monthly service fees. |
Open Account for CIT Platinum Savings
On CIT's Secure Website. |
Platinum Savings is a tiered interest rate account. Interest is paid on the entire account balance based on the interest rate and APY in effect that day for the balance tier associated with the end-of-day account balance. APYs — Annual Percentage Yields are accurate as of July 1, 2026: 0.25% APY on balances of $0.01 to $4,999.99; 3.75% APY on balances of $5,000.00 or more. Interest Rates for the Platinum Savings account are variable and may change at any time without notice. The minimum to open a Platinum Savings account is $100.
Based on comparison to the national average Annual Percentage Yield (APY) on savings accounts as published in the FDIC National Rates and Rate Caps, accurate as of February 17, 2026.
* Platinum Savings APY Boost Promotion Terms and Conditions
This is a limited time offer available to New and Existing customers who meet the Platinum Savings APY Boost promotion criteria.
Accounts enrolled in the Platinum Savings Annual Percentage Yield (APY) Boost promotion will receive a 0.35% APY boost on the Platinum Savings current standard APY tiers for 6 months following the opening of a new account or when an existing Platinum Savings account is enrolled in the promotion. The Platinum Savings APY boost will be applied on account balances up to $9,999,999.00. Account balances above $9,999,999.00 will earn the standard APY. If the standard-published APY should change during the promotion period, the APY boost will move with it, offering an account APY above the standard rate.
The Promotion begins on February 13, 2026, and ends August 31, 2026. Customers enrolled in the promotion prior to the end date will receive the APY boost for the 6- month period outlined in the terms and conditions.
The promotion can end at any time without notice.
CIT General Disclosure
For complete list of account details and fees, see our Personal Account disclosures.
¹New customers only. Earn a cash bonus when you deposit and maintain funds with partner banks on the Raisin platform. Customers can earn up to $60 for depositing between $10,000 and $24,999 ($50 welcome bonus + $10 bonus boost when you set up two recurring deposits or more totaling $100), up to $150 for depositing between $25,000 and $49,999 ($125 welcome bonus + $25 bonus boost when you set up two recurring deposits or more totaling $250), up to $300 for depositing between $50,000 and $99,999 ($250 welcome bonus + $50 bonus boost when you set up two recurring deposits or more totaling $500), up to $600 for depositing between $100,000 and $199,999 ($500 welcome bonus + $100 bonus boost when you set up two recurring deposits or more totaling $1,000), and up to $1,200 for depositing $200,000 or more ($1,000 welcome bonus + $200 bonus boost when you set up two recurring deposits or more totaling $2,000).
To qualify for the bonus, you must be a new Raisin customer who signs up between June 1, 2026, and July 31, 2026, and the promo code SUMMER26 must be entered at the time of sign-up. Deposit at least $10,000 within 14 days of your first deposit. You can make one or multiple deposits during this window, and your total deposited amount determines your bonus tier. You may add more funds during the 14-day window to reach a higher bonus tier. Satisfying these base requirements is mandatory to unlock and earn the optional recurring deposit boost. You can add this boost during your 14-day window by setting up an automated schedule that posts at least twice during the 90-day holding period. The recurring deposit boost is an extra cash reward earned by setting up an automated savings schedule within your first 14 days that posts at least twice during the 90-day holding period. Your base welcome bonus tier sets the maximum cap for this extra reward. If you choose to skip it, you will still earn your base welcome bonus by meeting the standard qualifying terms. However, you cannot earn the recurring boost on its own; satisfying the base welcome bonus requirements is mandatory to unlock it.
Once the deposit window closes, your balance must remain at or above your qualifying bonus tier for 90 days. If your balance drops below that amount during the 90-day period, you may no longer be eligible for that bonus. Only funds deposited within 14 days of the initial deposit date and maintained with partner banks on the Raisin platform for 90 days will be eligible for this bonus.
Bonus cash will be deposited by Raisin into the customer’s Cash Account within 30 days of meeting all qualifying terms. This offer is available to new customers only and may not be combined with any other bonus offers. Raisin reserves the right to modify or terminate this offer at any time.
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.
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.
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.
Motley Fool Stock Disclosures
Matt Frankel has positions in Capital One Financial. The Motley Fool has positions in and recommends Target. The Motley Fool recommends Capital One Financial. The Motley Fool has a disclosure policy.