Are High Yield Savings Accounts Taxed? How Savings Interest Is Taxed
Yes: interest from high yield savings, CDs and bank bonuses is taxable. Here is how it is taxed, when you get a 1099 INT, how CDs differ and how to estimate what you will owe.
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Yes. Interest from a high yield savings account is taxable income in the year it is credited to your account, even if you never withdraw it. It is taxed at your ordinary income tax rate, federally and usually by your state. Banks send Form 1099 INT if you earn $10 or more in a year, but you must report all interest, even under $10. Bank bonuses for opening an account are taxed as interest too.
Higher savings rates mean more interest, and more interest means a bigger number on your tax return. Here is how it works, so there are no surprises in April.
This guide explains general US federal rules from the IRS, checked Oct 4, 2026. It is not tax advice; for your situation, talk to a tax professional.
How is savings interest taxed?
The IRS treats most interest you can withdraw without penalty as taxable income in the year it becomes available to you. For a savings account, that means the year the bank credits it. It does not matter whether you leave it in the account to compound.
Interest is taxed as ordinary income, at the same rate as your wages. There is no special lower rate like the one for long term capital gains.
When do you get a Form 1099 INT?
Banks must send you a Form 1099 INT if they paid you $10 or more in interest during the year, usually by the end of January. If you earned less than $10, you may not get a form, but the IRS says you still have to report all taxable interest on your return.
If your total taxable interest is over $1,500 for the year, you also list each source on Schedule B of Form 1040.
How much tax will you owe?
Multiply your interest by your tax rate. A few examples at a 22% federal rate:
| Balance | Interest at 4.00% APY | Federal tax at 22% | You keep |
|---|---|---|---|
| $10,000 | $400 | $88 | $312 |
| $50,000 | $2,000 | $440 | $1,560 |
| $100,000 | $4,000 | $880 | $3,120 |
Illustration only, at a round 4.00% APY. Your rate depends on your income and filing status, and most states tax interest as well.
Even after tax, a top account beats a low rate account by a wide margin. At the national average savings rate of 0.38% (as of Oct 19, 2026), $10,000 earns about $38 before tax.
Do you pay state tax on savings interest?
Usually, yes. Most states with an income tax tax bank interest. One contrast: interest from US Treasury bills, notes and bonds is subject to federal income tax but exempt from state and local income taxes, which can matter if you live in a high tax state.
The net investment income tax
Higher earners may owe an extra 3.8% net investment income tax, which includes interest. It applies when modified adjusted gross income is over $200,000 for single filers or $250,000 for married couples filing jointly.
How are CDs taxed?
- CDs that pay interest during the term: taxed in the year the interest is credited, like savings.
- CDs longer than one year that pay at maturity: you generally report part of the interest each year as it accrues, even before you receive it. The bank reports this on Form 1099 OID.
- Early withdrawal penalties: if you pay a penalty for breaking a CD, you can deduct it on Schedule 1 of Form 1040. See CD early withdrawal penalties.
Are bank bonuses taxed?
Yes. The IRS treats a gift or bonus for opening an account as interest income. A $300 checking bonus is taxed like $300 of interest and usually appears on a 1099 INT. See best checking account bonuses.
Can you avoid tax on savings interest?
Not in a regular savings account, but you can choose where your savings sit:
- Retirement accounts: interest earned inside an IRA is not taxed each year; Roth IRA withdrawals can be tax free if you meet the rules.
- Treasury bills: no state or local income tax on the interest.
- Health savings accounts: interest grows tax free when used for qualified medical costs, if you are eligible.
For most people, the simplest move is to keep earning the higher rate and set aside part of the interest for taxes.
Do you need to pay estimated tax?
Banks do not usually withhold tax from interest. If you earn a lot of interest, you may owe more when you file, and the IRS may expect estimated payments during the year. Raising the withholding on your paycheck is an easy way to cover it.
Ready to compare rates? See our best high yield savings accounts, or how much your balance could earn: $10,000, $50,000 or $100,000.
Frequently asked questions
Do you pay taxes on high yield savings accounts?
Yes. Interest is taxable income in the year it is credited, taxed at your ordinary income rate, even if you leave it in the account.
Will I get a 1099 for my savings account?
Banks send Form 1099 INT if you earn $10 or more in interest in a year. You must report all interest, even if you do not get a form.
Do I have to report interest under $10?
Yes. The IRS says you must report all taxable interest, whether or not you receive a Form 1099 INT.
Is savings interest taxed by my state?
Usually, yes, in states with an income tax. Interest on US Treasury securities is exempt from state and local income taxes.
Are bank account bonuses taxable?
Yes. The IRS treats bonuses for opening an account as interest income.
Are CD early withdrawal penalties tax deductible?
Yes. You can deduct an early withdrawal penalty on Schedule 1 of Form 1040.
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