How Is Savings Account Interest Taxed in Australia?

Chasing a higher savings rate is worth it — but the interest you earn isn't all yours to keep. In Australia, interest from a savings account is treated as income, and the Australian Taxation Office (ATO) expects it to be declared. There's no separate “savings tax” and no special rate; the interest simply gets added to everything else you earn. Here's how it actually works, so there are no surprises at tax time.

Interest counts as assessable income

Any interest a bank or credit union pays you — including bonus interest on a conditional saver — is assessable income. It's added to your salary, business income, and any other earnings, and the total is taxed at your marginal rate. So the tax you pay on savings interest depends entirely on which tax bracket that extra income falls into.

Banks report the interest they pay directly to the ATO, which is why it usually appears pre-filled in your tax return. That reporting happens whether or not you remember the amount, so leaving it off isn't really an option — the figures are already matched.

How much you'll actually pay

Because interest is taxed at your marginal rate, the cost depends on your income. As a rough guide, if your marginal rate is 30% — 32% once the 2% Medicare levy is included — then $1,000 of interest costs you $320 in tax, leaving you $680. Someone in the top bracket keeps less of the same $1,000; someone below the tax-free threshold may pay nothing on it at all.

The practical takeaway: the “after-tax” return on a savings account is always lower than the advertised rate, and how much lower depends on you, not the bank. A higher earner needs a higher headline rate to end up in the same place as a lower earner.

Give your bank your TFN — or lose 47% up front

You're not legally required to give a bank your Tax File Number (TFN) when you open a savings account. But if you don't, the bank must withhold tax from your interest at the top marginal rate plus the Medicare levy — currently 47%.

This isn't a penalty you forfeit forever: the withheld amount is credited against your tax bill when you lodge your return, so you get any excess back. But it's a poor outcome for cash flow — nearly half your interest is held by the ATO until tax time, for no reason. Providing your TFN avoids it entirely.

Joint accounts and children's accounts

For a joint account, the interest is generally split according to who owns the money and declared on each holder's return — typically 50/50 for a couple, unless the funds clearly belong to one person.

For a child's account, the rules depend on whose money it really is. If a parent controls the account and the funds are effectively theirs, the interest is taxed as the parent's income. Genuine savings belonging to the child are taxed to the child — but at penalty rates designed to stop income being shifted to children: a minor's interest income is tax-free up to $416 a year, the portion between $417 and $1,307 is taxed at 66%, and once it passes $1,307 the whole amount is taxed at 45%. If you're weighing up an account for a child, our guide to savings accounts for young Australians covers the options.

When is the interest taxed?

Interest is taxed in the financial year it is credited or made available to you — not when you eventually withdraw it. If bonus interest lands in your account in June, it belongs to that financial year even if you don't touch it. This matters for bonus savers, where a chunk of interest can be paid in a single month.

Should you set money aside for the tax?

Unlike your salary, savings interest usually has no tax taken out along the way (the exception being the TFN withholding above). That means the tax on a year's interest can land as a bill when you lodge your return. If you're earning a meaningful amount of interest, it's worth mentally setting aside your marginal rate — say 30 or 37 cents in the dollar — so the bill isn't a shock. Some savers park that portion in the same high-interest account, where it keeps earning until it's due.

The rate still matters most

Tax reduces every saver's return, but it doesn't change the ranking: a higher ongoing rate still leaves you better off after tax than a lower one. The lever you actually control is the rate you're earning — so it's worth checking yours against the market. You can compare current accounts on our comparison page and see which accounts are paying above 5%.

This is general information, not financial advice, and it isn't tax advice. Tax rules and thresholds change and depend on your circumstances — check the ATO website or speak to a registered tax agent about your own situation.

One thing you can do now: make sure your TFN is recorded against every savings account you hold, so you're not having 47% withheld unnecessarily.