Yes, the interest your savings account earns is taxable income

The money you deposit into a savings account is yours and not taxed — you already paid tax on it when you earned it. But the interest the bank pays you for letting them use that money is new income, and the IRS treats it like wages or other earnings. You owe federal income tax on it, and depending on where you live, you may owe state and local income tax too.

This applies to all savings accounts: regular savings accounts, money market accounts, and certificates of deposit (CDs). The tax rate depends on your overall income for the year, not on how much interest you earned. A person earning $30,000 a year pays a lower tax rate on savings interest than someone earning $100,000.

Key Takeaways

  • Interest earned in a savings account counts as taxable income on your federal tax return, taxed at your regular income tax rate.
  • Banks report savings interest to the IRS on a Form 1099-INT if you earned $10 or more in interest during the year.
  • You report the interest amount on your tax return even if the bank did not send you a 1099-INT, so keep your own records.
  • State and local income taxes may also explore to savings interest, depending on your location.
  • Interest earned in a regular savings account is taxed every year, but interest in a CD is taxed in the year you earn it, not when you withdraw it.

How banks report your interest to the IRS

If you earn $10 or more in interest during a calendar year, your bank will send you a Form 1099-INT by January 31 of the following year. This form shows the total interest you earned. The bank sends a copy to the IRS at the same time, so the IRS already knows about your interest income before you file your tax return.

The $10 threshold is a reporting requirement, not a tax threshold — you owe tax on interest below $10 too, even if the bank does not send you a form. If you earned $7 in interest, you still report it on your return. Keep your own records of interest earned so you can report the correct amount.

If you have multiple savings accounts at different banks, each bank sends its own 1099-INT. You add up all the interest from all the forms and report the total on your tax return.

Where you report savings interest on your tax return

You report savings account interest on Form 1040, which is the main federal income tax return form. The interest goes on the line for "interest" in the income section — usually near the top of the form where other types of income are listed.

If you use tax software to file, the software will ask you about interest income and put it in the right place automatically. If you file by hand or with a tax preparer, they will know where to put it. The key is to report the total interest from all your accounts combined.

You do not need to attach the 1099-INT forms to your return, but keep them with your tax records in case the IRS asks questions later.

State and local taxes on savings interest

Most states tax savings interest as part of your regular income tax. If your state has an income tax, you report the same interest amount on your state return. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax, so you owe no state tax on savings interest there.

Some cities and counties also charge local income tax. If you live in a place with local income tax, you report savings interest there too. Your tax preparer or software can tell you whether your location has local income tax.

How much tax you actually owe on savings interest

The tax rate on savings interest is your marginal tax rate — the tax bracket you fall into based on your total income for the year. If you earn $35,000 in wages and $500 in savings interest, your total taxable income is $35,500, and you pay tax on that $500 at whatever rate applies to your income level.

Federal income tax brackets change each year. For 2024, a single person with $35,500 in income falls into the 12% tax bracket, so roughly $60 of that $500 in interest would go to federal income tax (the actual amount depends on deductions and other factors). Someone with $100,000 in income falls into a higher bracket and pays a higher percentage.

You do not pay the tax directly to the bank — you pay it when you file your tax return or through estimated tax payments if you owe a large amount. The bank does not withhold tax from savings interest unless you ask them to, which is rare.

Interest in CDs and special savings products

A certificate of deposit (CD) works differently from a regular savings account in one tax way: you owe tax on the interest in the year you earn it, even if you do not withdraw the money until later. If you buy a 5-year CD in 2024 and it earns $200 in interest that year, you report that $200 on your 2024 tax return, not in 2029 when the CD matures.

Some banks offer "no-penalty CDs" or other products that let you withdraw early. The tax rule stays the same — you report interest in the year you earn it. If you withdraw early and lose some interest as a penalty, you can deduct that penalty on your tax return, which reduces your taxable interest income.

High-yield savings accounts work like regular savings accounts for tax purposes. You report the interest in the year you earn it, just like with any other savings account.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The $10 threshold only means the bank does not have to send you a 1099-INT form. You still owe tax on all interest you earned, even $3 or $5. Keep your own records and report the correct amount on your return.

What if I earned interest but the bank did not send me a 1099-INT?

Report the interest anyway. The bank may have made a mistake, or the interest may have fallen below their reporting threshold. You know how much interest you earned from your account statements, so use that amount on your tax return.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount the bank paid you. If the bank charged you a fee, that is a separate issue — you cannot reduce your reported interest to account for it, though in some cases you may be able to deduct investment-related fees on your tax return (rules vary by situation).

Is interest from a joint savings account split between owners for tax purposes?

Not automatically. The bank reports the full interest amount on a 1099-INT, usually in the name of the first account owner. You and the other owner need to decide how to split the interest for tax purposes and report it correctly on your individual returns. This is a conversation to have with a tax preparer if you are unsure.

What if I moved my money between banks during the year?

Each bank reports only the interest earned while your money was with them. You add up all the 1099-INT forms you receive and report the total. Moving money does not change the tax rule — all interest is taxable in the year you earn it.