Do You Pay Tax on Savings Account Interest in Australia?

Yes, savings interest is taxable🔗

Interest from a savings account, term deposit, or cash management account is assessable income. The ATO treats it like wages: it is added to your other income for the year and taxed at your marginal tax rate, plus the 2% Medicare levy. There is no special low rate for interest, no separate tax-free amount, and no annual exemption. Every dollar of interest is ordinary income, whether it comes from a big four bank, a credit union, a neobank, or a term deposit.

Your bank already tells the ATO🔗

Thinking of quietly leaving it off? The ATO is already expecting it. Banks and credit unions must report the interest they pay to the ATO each year, which is why your interest is usually sitting pre-filled in myTax before you type anything. Even if it is not pre-filled (a newer or foreign account), you must still declare it, and the ATO data-matches bank reports against returns, so omissions get caught.

How much tax will you pay?🔗

Your interest is taxed at the rate on the top slice of your income, so it sits on top of everything else you earned. A quick worked view across income levels:

Take the middle row: on $72,000 salary plus $2,000 interest, the interest falls in the 30% bracket, so tax is $600 plus $40 Medicare levy, leaving $1,360. Because tax on interest is not deducted at source, the full amount lands in your account during the year and you owe the tax at lodgement. Set aside your marginal rate plus 2% as you go so October is not a shock. Our salary and tax calculator can help you find your marginal rate.

The TFN trap: 47% withholding🔗

If you do not quote your Tax File Number to your bank and your annual interest from that account is $120 or more, the bank must withhold tax at 47% before paying you. It is not a penalty, and you can claim it back at tax time, but it is a lot of hassle for something that takes two minutes to fix. Give each of your accounts your TFN upfront. A few categories are exempt, including children under 16 in some cases.

Joint accounts: split by ownership🔗

Interest on a joint account is split by ownership share, which for most couples is 50/50, and each person declares their half in their own return. If the split is genuinely different (one person contributed all the funds), declare in proportion to actual ownership and keep records. What you cannot do is simply attribute all the interest to the lower earner to minimise tax: the ATO expects it declared by real ownership.

Children's accounts: watch the penalty rates🔗

Who declares the interest on a child's account depends on who really owns and controls the money:

• Genuinely the child's money (gifts, inheritances, money they earned): the child is the taxpayer.
• Really your money (you deposited and control it): you declare the interest, whoever's name is on the account.

Children under 18 are taxed at penalty rates on unearned income like interest: nil up to $416, then 66% on the amount from $417 to $1,307, and 45% on the whole lot above $1,307. These rules exist to discourage income splitting, so parking a large sum in a child's name to save your own tax usually backfires. Most small kids' accounts stay under $416 and pay no tax.

Why an offset can beat a savings account🔗

Two situations work differently. Interest earned inside super is taxed at the fund's 15% rate, not your marginal rate, and the fund handles it. And a mortgage offset account does not earn interest at all: it reduces the loan balance you pay interest on, so you save interest rather than earn it, and that saving is not assessable income.

For someone with a home loan, that makes an offset meaningfully more tax-effective than a savings account, especially at higher marginal rates. Our guide on offset accounts vs redraw covers how to use one.

How to declare it🔗

Frequently asked questions🔗

Sources🔗

1. ATO, investing in bank accounts and income bonds
2. ATO, tax rates for Australian residents
3. ASIC Moneysmart, savings accounts
4. ASIC Moneysmart, mortgage offset accounts

General information only, not personal financial or tax advice. It does not take your circumstances into account, and tax rules can change. Consider a registered tax agent for your situation.