You pay taxes on the interest your savings account earns, not on the money you deposit
The money you put into your savings account is yours — you do not owe taxes on it. But when the bank pays you interest (the small amount of money the bank gives you for letting them hold your money), that interest counts as income, and you will owe taxes on it.
Think of it this way: depositing $1,000 is not taxable because it is your own money moving from one place to another. But if the bank pays you $5 in interest that year, that $5 is new income, just like a paycheck. The IRS wants to know about it.
The amount of interest you earn depends on the interest rate your bank offers and how much money sits in the account. Most regular savings accounts earn very little interest — sometimes less than $1 per year on a small balance. But the rule is the same no matter the amount: you report the interest as income.
Key Takeaways
- Money you deposit into a savings account is not taxable — it is your own money, not new income.
- Interest the bank pays you on your savings is taxable income and must be reported to the IRS.
- Your bank will send you a Form 1099-INT if you earn $10 or more in interest during the year, though you may owe taxes on smaller amounts too.
- You report savings account interest on your tax return even if you do not receive a Form 1099-INT.
- High-yield savings accounts earn more interest than regular accounts, which means you may owe more in taxes on that interest.
How the IRS finds out about your savings interest
Your bank tracks the interest it pays you and reports it to the IRS on a form called a Form 1099-INT. The bank sends you a copy of this form by January 31 each year if you earned $10 or more in interest during the previous year.
You receive this form even if you do not ask for it — the bank is required to send it. The IRS receives a copy too, so they know how much interest you earned. This is how the IRS matches what you report on your tax return against what the bank reported.
If you earned less than $10 in interest, the bank may not send you a Form 1099-INT, but you still owe taxes on that interest if you are required to file a tax return. You will need to add up the interest yourself and report it.
What counts as interest income from a savings account
Interest is the money the bank pays you for keeping your money with them. It appears as a deposit in your account, usually monthly or quarterly. Some accounts call it "interest earned" or "interest paid" on your statement.
Different types of savings accounts earn interest at different rates. A regular savings account might earn 0.01% per year. A high-yield savings account might earn 4% or 5% per year — much more. The higher the rate, the more interest you earn, and the more you will owe in taxes.
Certificates of Deposit (CDs) also earn interest, and that interest is taxable the same way. Money Market Accounts earn interest too. Any interest your bank pays you, from any type of account, counts as taxable income.
When you actually have to report the interest
You report savings account interest on your tax return if you are required to file one. Whether you are required to file depends on your income level, age, and filing status — rules that change each year. The IRS website has a tool to help you figure out if you need to file.
If you do file a tax return, you report the interest on a form called Schedule B (if you have other investment income) or directly on your main tax form if the interest is your only investment income. You add the interest to your other income, and it may increase the taxes you owe.
If you earned interest from multiple banks or accounts, you add all of it together and report the total. The IRS does not care that the interest came from different places — it all counts as income.
How much tax you will owe on savings interest
The tax you owe on interest depends on your overall income and tax bracket. Interest is taxed as ordinary income, which means it is taxed at the same rate as wages from a job.
If you earn $50 in interest and you are in the 22% tax bracket, you would owe roughly $11 in federal taxes on that interest (though state taxes may explore too, depending on where you live). If you earn $500 in interest, you would owe roughly $110.
The exact amount depends on your total income for the year, your filing status, and whether you claim deductions. A tax professional or tax software can calculate the exact amount you owe. For most people with small savings account balances, the tax on interest is very small — sometimes just a few dollars.
High-yield savings accounts and taxes
High-yield savings accounts earn much more interest than regular savings accounts — sometimes 4% to 5% per year instead of 0.01%. This is good for your savings, but it also means you will owe more in taxes on the interest.
If you have $10,000 in a high-yield account earning 4.5%, you would earn about $450 in interest per year. That $450 is taxable income. In a regular savings account earning 0.01%, you would earn only $1 in interest, which is taxable but a much smaller amount.
This does not mean high-yield accounts are a bad choice — you still come out ahead because you earn so much more interest. But it is worth knowing that the higher interest rate means higher taxes on that interest.
What you do not pay taxes on
You do not pay taxes on the money you put into the account. If you deposit $5,000, that $5,000 is not taxable. It is your own money.
You do not pay taxes when you withdraw money from the account either. If you take out $2,000, that withdrawal is not taxable. Again, it is your own money leaving the account.
You only pay taxes on the interest — the new money the bank created by paying you for keeping your account with them. Everything else is just your money moving around.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
The bank does not have to send you a Form 1099-INT if you earned less than $10, but you still owe taxes on that interest if you file a tax return. You will need to add it up yourself from your bank statements and report it.
What if I have savings accounts at multiple banks?
You add up the interest from all your accounts and report the total on your tax return. Each bank sends you a Form 1099-INT if you earned $10 or more at that bank, so you will have multiple forms to add together.
Can I deduct savings account fees from the interest I report?
No. You report the interest the bank paid you as income. Fees you paid to the bank are separate and generally cannot be deducted on your personal tax return. Report the gross interest amount the bank shows on your Form 1099-INT.
Do I owe taxes on interest if I am a dependent?
It depends on your total income and your parents' income. The rules for dependents are different from the rules for independent filers. A tax professional can tell you whether you need to file based on your specific situation.
What if the bank made a mistake on my Form 1099-INT?
Contact the bank and ask them to issue a corrected form called a Form 1099-INT with a "corrected" label. The bank will send the corrected form to you and the IRS. Report the correct amount on your tax return.