Yes. Interest you earn on a savings account is taxable income in Australia, and that includes high interest, or high yield, savings accounts. The interest is added to the rest of your income for the year and taxed at your marginal tax rate, the same rate that applies to your wages. Your bank reports the interest to the ATO, so it is usually pre-filled in your return, and the responsibility to declare it is yours. There is no special tax-free savings account in Australia, so the interest counts as income no matter how small the amount.
How is savings interest taxed?
Interest is treated as ordinary income. It is added to your salary, business income, and anything else you earned during the year, and the total is taxed at your marginal rate, which for the 2025 to 2026 year runs from nil up to 45%, plus the 2% Medicare levy. There is no separate, lower rate for savings.
Here is a quick example. If you earned $2,000 in interest and your marginal rate is 30%, that interest adds about $600 to your tax for the year, a little more once the Medicare levy is counted. If your total income for the year sits under the $18,200 tax-free threshold, you pay nothing on it.
Do you declare it, or does the bank?
Both play a part. The bank reports the interest it paid you straight to the ATO, and that figure is usually pre-filled when you or your accountant prepare your return. But the legal duty to declare it is yours. The ATO matches what the banks report against what you lodge, so leaving interest off is one of the easiest ways to trigger a please explain letter. It is worth checking the pre-filled amount is complete, especially if you moved money between banks or opened a new account partway through the year.
What if you don’t give the bank your TFN?
You are not legally required to hand over your tax file number to open an account, but if you don’t, the bank must withhold tax from your interest at the top marginal rate, currently 47% including the Medicare levy. That is far higher than most people’s actual rate, so you end up overpaying and waiting to claim the difference back at tax time.
There are exceptions. The bank does not withhold if you are under 16, or if the account earns less than $420 in interest for the year. For everyone else, simply giving the bank your TFN is how you avoid having tax taken out at the highest rate.
What about joint accounts and children’s accounts?
For a joint account, the interest is generally split between the account holders in line with who owns the money, which for a couple is usually half each, and each person declares their share. For an account held for a child, who declares the interest depends on who really controls and spends the money, not just whose name is on the account. If a parent operates the account and uses the funds, the parent usually declares the interest.
How to keep the tax on your savings sensible
A few legitimate points are worth knowing. Because interest is taxed at your marginal rate, savings held in the name of a partner on a lower income are taxed less. That only makes sense if it fits your wider situation, so it is worth getting advice before shuffling money around.
If you have a home loan, a mortgage offset account works differently and is often the smarter option. Money sitting in an offset reduces the interest charged on your loan rather than earning you interest, and because you are not earning interest, there is nothing to be taxed. For many people with a mortgage, an offset leaves them better off after tax than a savings account paying a similar rate. This is general information rather than personal advice, and the right answer depends on your own numbers.
