Tax on Savings & Term Deposit Interest in Australia

Is Interest on Savings Taxable in Australia?

Yes - every dollar of interest you earn on a savings account or term deposit is taxable income in Australia. The ATO treats interest exactly the same as salary or wages: it's added to your assessable income and taxed at your marginal rate.

Many Australians don't realise this until they see interest pre-filled in their tax return. With the RBA cash rate at 3.85% and savings rates climbing, more people are earning meaningful interest - and that means a bigger tax bill if you're not prepared.

This guide explains exactly how interest income is taxed, what happens if you don't provide your TFN, how term deposit interest is declared, special rules for children and SMSFs, and practical strategies to keep more of your earnings.

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How Interest Income Is Taxed

Interest earned on savings accounts and term deposits is assessable income. It is not taxed at a separate capital gains rate or concessional rate - it's added on top of your other income (salary, business income, rental income, etc.) and taxed at your marginal tax rate.

A Quick Example

Say you have $50,000 in a high-interest savings account earning 5.00% p.a. That's $2,500 in interest over the year.

If your total taxable income (including this interest) puts you in the 30% marginal tax bracket, you'd owe:

$2,500 × 30% = $750 in tax on that interest alone.

Your take-home return on that $50,000 drops from $2,500 to $1,750 after tax. Understanding this gap is essential when comparing savings rates.

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Australian Tax Brackets (2024–25 and 2025–26)

The following tax brackets apply to Australian residents for the 2024–25 and 2025–26 financial years. These reflect the Stage 3 tax cuts effective from 1 July 2024.

Note: These rates do not include the 2% Medicare levy, which applies to most residents. Your effective marginal rate is therefore 2 percentage points higher (e.g. 32% instead of 30%).

What Does This Mean for Your Savings Interest?

As you can see, a high-income earner keeps barely half of their interest earnings. This is why tax-effective strategies matter.

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TFN Withholding Tax: Don't Forget Your Tax File Number

If you don't provide your Tax File Number (TFN) to your bank or financial institution, they are legally required to withhold tax from your interest at the highest marginal rate plus the Medicare levy - a total of 47%.

This applies regardless of your actual income level. Even if you earn under $18,200 and would normally pay zero tax, the bank still withholds 47% if no TFN is on file.

How to Provide Your TFN

• When opening an account: You'll be asked for your TFN during the application process. Always provide it.
• Existing accounts: Log in to your internet banking or contact your bank to add your TFN. Most banks allow this online.
• Joint accounts: Each account holder should provide their own TFN separately.

What If You Forgot?

If tax has been withheld because you didn't supply your TFN, you can claim a credit for the withheld amount when you lodge your tax return. You may receive a refund - but it means your money has been tied up unnecessarily all year.

Tip: Check all your savings accounts and term deposits to make sure your TFN is on file. It takes two minutes and could save you hundreds in cash flow.

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When Do You Declare Interest Income?

The timing of when you declare interest depends on the type of account and how interest is paid.

Savings Accounts

Interest on savings accounts is typically credited monthly. You declare the interest in the financial year it is credited to your account. Your bank reports this to the ATO and it usually appears pre-filled in your tax return.

Term Deposits

For term deposits, the rule depends on how the interest is paid or credited:

• Interest paid at maturity: Declare it in the financial year the term deposit matures and the interest is credited - even if the investment spanned two financial years.
• Interest paid periodically (monthly, quarterly, or annually): Declare the portion credited during each relevant financial year.
• Rolled-over term deposits: If you roll over a TD including the interest, you still must declare that interest in the year the rollover occurs.

Example

You invest $100,000 in a 12-month term deposit in October 2025 maturing October 2026. If interest is paid at maturity, you declare the full amount in your 2026–27 tax return (the financial year ending 30 June 2027).

Tip: Check the term deposit maturity guide for more on handling TD rollovers and maturity decisions.

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Interest on Joint Accounts

For jointly held savings accounts or term deposits, the ATO assumes the interest is split equally between all account holders by default.

• Two holders: Each declares 50% of the interest earned
• Three holders: Each declares one-third

If ownership is not equal (for example, one person contributed 80% of the funds), you can declare interest in proportion to actual ownership - but you should keep records to support this if the ATO queries it.

Both account holders should provide their own TFN to the bank to avoid withholding tax.

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Tax on Interest for Minors (Under 18)

Children under 18 face special tax rules on unearned income, which includes interest from savings accounts. These rules are designed to prevent adults from diverting income to children to take advantage of lower tax rates.

For a minor who is not an excepted person, the tax rates on unearned income (such as interest) are:

This means a child's savings account earning more than $1,307 in interest per year is taxed at 45% on the entire amount - a very harsh rate.

Who Is an "Excepted Person"?

A minor who works full-time (or meets other criteria such as receiving a disability support pension) is treated as an excepted person and taxed at normal adult rates, including the $18,200 tax-free threshold.

Practical Tip

If your child has a kids savings account earning more than a few hundred dollars in interest, it may be worth speaking to a tax adviser about the most tax-effective structure.

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SMSF Tax Treatment

Self-managed super funds (SMSFs) that hold cash in savings accounts or term deposits benefit from significantly lower tax rates:

This makes SMSFs an attractive vehicle for holding cash investments, particularly for retirees in pension phase who pay zero tax on interest income.

However, SMSFs come with compliance costs and responsibilities. Read our SMSF cash and term deposits guide for a full breakdown.

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Strategies to Minimise Tax on Interest

While you can't avoid tax on interest entirely, there are legitimate strategies to reduce the impact:

1. Use an Offset Account Instead of Savings

An offset account linked to your home loan doesn't earn interest - instead, it reduces the interest charged on your mortgage. The tax benefit? Mortgage interest saved is not taxable income, whereas savings interest is.

Example: $50,000 in a savings account at 5.00% p.a. earns $2,500 in taxable interest. The same $50,000 in an offset account against a 6.00% p.a. mortgage saves $3,000 in mortgage interest - and you pay zero tax on that saving.

2. Time Interest Across Financial Years

If you have flexibility with term deposit maturity dates, you can spread interest income across financial years to stay in a lower tax bracket. This is particularly useful if you expect your income to vary between years.

3. Contribute to Super

If you're earning significant interest, consider making additional concessional contributions to super (taxed at 15%) rather than holding large cash balances personally (taxed at your marginal rate of up to 47%).

4. Split Income Across Family Members

Where appropriate and genuine, holding savings in the name of a lower-income spouse can reduce the overall family tax bill. Important: This must reflect genuine ownership - the ATO can challenge artificial arrangements.

5. Build an Emergency Fund Wisely

You still need accessible cash. Our emergency fund guide covers how to balance tax efficiency with liquidity. Consider keeping 3–6 months of expenses in a no-conditions savings account and directing remaining surplus into offset accounts or super.

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Declaring Interest in Your Tax Return

Most Australians use myTax (the ATO's online tax return system). Here's what to expect:

1. Pre-fill data: Your bank reports interest to the ATO, and it's usually pre-filled in your return by mid-August
2. Check accuracy: Compare the pre-filled amounts with your bank statements - especially if you changed accounts during the year
3. Multiple accounts: Interest from every account (savings, TDs, and even interest on your everyday account) must be declared
4. Joint accounts: Only declare your share
5. Deductions: You may be able to claim account-keeping fees on investment accounts as a deduction

Tip: If you switched banks to chase a better savings rate, you may have interest from multiple institutions. Make sure all accounts are captured.

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Key Takeaways

• All interest is taxable - it's added to your assessable income and taxed at your marginal rate
• Provide your TFN to every financial institution to avoid 47% withholding tax
• Savings interest is declared in the year it's credited; term deposit interest is declared when it's paid or credited
• Children under 18 face punitive tax rates on interest above $416
• SMSFs benefit from 15% tax (accumulation) or 0% tax (pension phase)
• Offset accounts offer a tax-free alternative to savings for homeowners
• Compare the best savings accounts and best term deposit rates to maximise your after-tax return