The short answer: the interest your bank pays you is taxable, but the money you deposit is not

Your savings account itself is not taxed. The money you put in stays yours without any tax bill just for holding it. However, when your bank pays you interest — the extra money they give you for letting them use your deposits — that interest counts as income to the IRS, and you owe tax on it.

This matters most if you have a larger balance or a high-yield savings account, where the interest is bigger. Even small amounts of interest are technically taxable, though you may not owe anything if your total income is low enough.

Key Takeaways

  • Interest earned in a savings account is taxable income, but the original money you deposited is not.
  • Your bank will send you a Form 1099-INT each January if you earned $10 or more in interest during the previous year.
  • You report this interest on your tax return as ordinary income, which means it is taxed at your regular income tax rate.
  • Even if you do not owe income tax overall, you still need to report interest income if your bank sent you a 1099-INT.

How banks report your interest to the IRS

At the end of each year, your bank calculates how much interest they paid you. If that amount is $10 or more, they send you a document called a Form 1099-INT and also send a copy to the IRS. This form shows exactly how much interest you earned.

You receive the 1099-INT by January 31 of the following year. For example, if you earned interest during 2024, you get the form in January 2025. Some banks let you view it online in your account; others mail it to the address on file.

If you earned less than $10 in interest, your bank does not have to send you a 1099-INT. However, you still owe tax on that interest if you file a tax return — you just have to calculate and report it yourself.

What counts as taxable interest

Taxable interest includes the regular interest your bank pays on your balance, interest from money market accounts, and interest from certificates of deposit (CDs). It also includes any bonus interest the bank paid you for opening the account or meeting certain conditions.

Some accounts earn very little interest — sometimes less than a dollar per year. That interest is still taxable, even though the amount is small. High-yield savings accounts, which currently pay higher rates than traditional savings accounts, generate more interest and therefore a larger tax bill.

How you report interest on your tax return

When you file your tax return, you report the interest income on a form called Schedule B (if you use the longer tax form) or directly on the 1040 form (if you use the shorter version). You add up all the interest from all your accounts and report the total.

This interest is taxed as ordinary income, which means it is taxed at the same rate as wages or salary. If you are in a higher tax bracket, your interest is taxed at a higher rate. If you are in a lower bracket, it is taxed at a lower rate.

You do not pay tax on the interest separately — it all gets added together with your other income when you calculate what you owe.

When you might not owe tax on interest

If your total income for the year is very low, you may not owe any income tax at all, even if you earned interest. The IRS sets a standard deduction — an amount of income you can earn without owing tax. If your income is below that threshold, you owe no tax.

However, you still need to report the interest on your tax return if your bank sent you a 1099-INT. The IRS receives a copy of that form, and they will notice if you do not report it. Even if you do not owe tax, filing the return shows you reported the income correctly.

The standard deduction changes each year and depends on your age and filing status. A tax professional or free tax software can tell you whether you need to file based on your specific situation.

Interest from different account types

Regular savings accounts typically earn very little interest — often less than 1% per year. A high-yield savings account might earn 4% or more, depending on the current rate environment. Money market accounts and CDs can also earn interest, and all of it is taxable the same way.

Some accounts are specifically designed to be tax-advantaged, like Roth IRAs or 529 education savings plans. Interest earned in those accounts is not taxed the same way as regular savings account interest. If you have money in those accounts, different rules explore, and you should review the specific rules for each type.

Keeping track of your interest for tax time

The easiest way to stay organized is to save your 1099-INT forms as you receive them in January. Keep them with your tax documents. If you have accounts at multiple banks, you will receive multiple 1099-INT forms — add them all together when you file.

Many banks also show your year-to-date interest in your online account or on your monthly statements. You can use this to estimate what your 1099-INT will show before it arrives. If you notice a big difference between what you expected and what the form says, contact your bank to ask about it.

Frequently Asked Questions

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

Your bank does not send you a 1099-INT if you earned less than $10, but you still owe tax on that interest if you file a tax return. You report it yourself on Schedule B or the 1040 form. The IRS does not know about it unless you tell them, but you are legally required to report all income.

Is interest from a joint account taxed differently?

If you have a joint savings account, the bank reports all the interest on one 1099-INT. You and the other account holder need to decide how to split the income for tax purposes — usually based on who owns what percentage of the account. Both of you should report your share on your own tax returns.

What if my bank sent me a 1099-INT but I closed the account?

You still report the interest on your tax return. The 1099-INT shows interest earned during the year, regardless of when you closed the account. The interest was income in the year it was paid, not in the year you closed the account.

Can I deduct anything to offset the interest income?

Interest income is added to your other income, and you cannot deduct it. However, you may be able to deduct other things — like investment losses or student loan interest — that reduce your overall taxable income. A tax professional can review your full situation to see what deductions you might have.

Does moving money between my own accounts count as income?

No. Transferring money from one account to another is not income. Only the interest your bank pays you is taxable. Moving your own money around does not create a tax bill.