Yes, but only on the interest your bank pays you, not on the money itself

The money you deposit into a savings account is yours — you do not owe tax on it. But the interest your bank pays you for keeping money there is income, and the IRS expects you to report it. The amount of tax you owe depends on how much interest you earned that year and your overall income.

Your bank will send you a form called a 1099-INT (or sometimes a 1099-OID) listing the interest you earned. You report this number on your tax return. If you earned less than a certain amount — currently $10 in interest — your bank may not send you a form, but you still report what you earned.

The tax rate on interest is the same as your regular income tax rate. If you are in the 22% tax bracket, you pay 22% of your interest as federal tax. Some states also tax interest income, depending on where you live.

Key Takeaways

  • You pay tax only on interest your bank pays you, not on your original deposit or the balance you keep in the account.
  • Your bank sends you a 1099-INT form showing interest earned; you report this on your tax return even if the amount is small.
  • Interest is taxed as ordinary income at your regular tax rate, which varies based on your total income for the year.
  • High-yield savings accounts earn more interest, which means you owe more tax, but the account itself is still tax-free.

How your bank reports interest to the IRS

Every January, your bank sends you a 1099-INT form showing how much interest you earned the previous year. This form goes to you and to the IRS at the same time. The IRS uses it to check that you reported the income on your tax return.

If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. Add all the interest together when you file your taxes. If you earned interest at a bank that closed or merged, you may receive a 1099-INT from the acquiring bank or from the FDIC.

If your interest was less than $10 for the year, your bank does not have to send you a form. However, you still owe tax on that interest if you are required to file a tax return. Report it on your return even without the form.

When you might owe no tax on interest

If your total income for the year is below the threshold where you must file a tax return, you do not owe federal tax on your interest. For 2024, a single person under 65 with only interest income does not have to file if they earned less than $14,600. These thresholds change each year and are higher if you are over 65 or married filing jointly.

Even if you do not have to file, you may want to file anyway — for example, if you had taxes withheld from a job and are owed a refund. In that case, reporting your interest is part of the process.

Some accounts, like Roth IRAs and certain education savings plans, let interest grow without owing tax on it each year. But a regular savings account is not one of them.

The difference between high-yield and regular savings accounts

A high-yield savings account pays much more interest than a regular savings account — sometimes 4% or 5% per year instead of 0.01%. This means you earn more money, but you also owe more tax on that interest.

For example, if you keep $10,000 in a regular savings account earning 0.01%, you earn $1 in interest and owe almost no tax. If you keep the same $10,000 in a high-yield account earning 4.5%, you earn $450 in interest and owe tax on that $450. The higher interest is still worth it for most people, but it is important to know that the extra earnings come with a tax bill.

The account itself — whether regular or high-yield — is not taxed. Only the interest is.

How to report interest on your tax return

When you file your federal tax return, you report interest income on Schedule B (if you have more than $1,500 in interest or dividends) or directly on Form 1040 (if you have less). You list each 1099-INT you received and add up the total interest.

If you file using tax software, you enter the information from your 1099-INT forms and the software puts it in the right place. If you file by hand or with a tax preparer, they will ask you for your 1099-INT forms.

Keep your 1099-INT forms with your tax records for at least three years. The IRS can ask to see them if they audit your return.

State taxes on savings account interest

Most states tax interest income the same way the federal government does — as ordinary income at your state tax rate. A few states do not tax interest at all. If you live in one of those states, you still owe federal tax, but not state tax.

Some states offer tax breaks for interest earned in certain types of accounts, like college savings plans. Check your state's tax rules or ask a tax preparer if you are unsure whether your state taxes your interest.

What happens if you do not report interest income

The IRS receives a copy of every 1099-INT your bank sends you. If you do not report the interest on your tax return, the IRS will notice the discrepancy. You may receive a notice asking you to explain the difference, and you could owe back taxes plus penalties and interest.

Even small amounts of interest should be reported. It is not worth the risk of an audit or penalty to skip reporting $10 or $50 in interest.

Frequently Asked Questions

Do I owe tax on money I transfer between my own savings accounts?

No. Moving money from one account to another is not income. You only owe tax on interest the bank pays you for letting them use your money.

What if I earned interest but did not receive a 1099-INT form?

If you earned less than $10, your bank does not have to send a form. If you earned $10 or more and did not receive one by late January, contact your bank. You still report the interest on your tax return even without the form.

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

No. You report the full interest amount on your tax return. Fees are not deductible against interest income for most people, though you may be able to deduct them as miscellaneous expenses in certain situations. Ask a tax preparer about your specific case.

Does opening a new savings account change how much tax I owe?

Opening an account does not change your tax. You owe tax only on the interest you earn. A new account with no balance earns no interest and creates no tax.

What if I closed my savings account during the year?

You report the interest you earned while the account was open. The bank reports it on a 1099-INT for the year you closed it. Closing the account does not change your tax obligation for the interest already earned.