You cannot make savings interest completely tax-free in Australia. Interest is income, the bank reports it to the ATO, and it is taxed at your marginal rate. What you can do is legally pay less, mostly by choosing where you keep your money and whose name holds it. The main levers are a mortgage offset account, which earns no taxable interest at all, holding savings in the name of a lower-income partner, making full use of the tax-free threshold, and moving longer-term savings into lower-taxed places such as super or an investment bond. None of this involves hiding anything from the ATO, which is a different thing entirely and is not legal.
Can you avoid tax on savings interest completely?
Not really, and it helps to be clear about that up front. There is no Australian equivalent of a tax-free savings account, so any interest you earn is assessable and has to be declared. The bank tells the ATO exactly what it paid you, and the ATO matches that against your return, so leaving interest off is tax evasion, not tax planning, and it carries penalties and interest. The legitimate goal is not to make the interest invisible. It is to earn it in a smarter place, or in a lower-taxed name. Everything below does one of those two things.
Use a mortgage offset account
If you have a home loan, this is usually the single best move. Money sitting in a mortgage offset account reduces the interest charged on your loan instead of earning you interest. Because you are not earning interest, there is nothing for the ATO to tax. A dollar saved in loan interest is actually worth more than a dollar earned in a savings account, because the saved interest is not taxed while the earned interest is. For most people with a mortgage and some spare cash, an offset beats a savings account paying a similar rate every single time, and it does so without any clever structuring.
Hold savings in the lower-income earner’s name
Interest is taxed at the marginal rate of whoever owns the money. If one partner earns much less, or nothing, holding the savings in their name means the interest is taxed at their lower rate, and possibly not taxed at all if their total income stays under the tax-free threshold. This only works if the money genuinely belongs to that person, so it is not something to do on paper only. It also needs to fit the rest of your finances, so it is worth a quick word with your accountant before you start moving accounts around.
Keep the tax-free threshold in mind
The first $18,200 of income each year is tax-free. If your total income, including interest, sits under that figure, you pay no tax on the interest at all. This matters most for students, part-time workers, retirees on low incomes, and anyone having a lower-earning year. If you are in that position, giving the bank your tax file number is important, because without it the bank will withhold tax you would not otherwise have had to pay, and you would then have to claim it back.
Move longer-term savings into super
Money inside super is taxed at 15% on the way in and on its earnings, which is lower than most people’s marginal rate. If you are saving for the long term rather than for next month, salary sacrificing into super, or claiming a deduction for a personal contribution, turns income that would be taxed at your marginal rate into income taxed at 15%. The concessional contributions cap is $30,000 for the 2025 to 2026 year, and that includes what your employer already pays in. The trade-off is real: you cannot get the money back until you meet a condition of release, usually retirement, so this suits savings you genuinely do not need soon.
If you are saving for your first home, the First Home Super Saver Scheme lets you put extra money into super and later withdraw up to $50,000 of your voluntary contributions, plus earnings, to buy a home. Inside super those savings are taxed more lightly than in a bank account, which is the entire point of the scheme.
Consider an investment bond for the long term
For higher earners, an investment bond, sometimes called an insurance bond, can be more tax-effective than a savings account. Earnings inside the bond are taxed at up to 30%, and if you hold it for at least ten years and follow the contribution rules, you can withdraw the money with no further personal tax to pay. If your marginal rate is above 30%, that can beat holding the same money in a savings account taxed at your full rate. Bonds are a longer-term product, so they suit money you can afford to leave alone rather than an everyday buffer.
Give the bank your tax file number
This one does not reduce your tax, but it stops you overpaying, which amounts to the same thing in your pocket. If the bank does not have your TFN, it must withhold tax from your interest at the top rate of 47%, far more than most people actually owe. You then wait until you lodge to claim the difference back. Quoting your TFN keeps your money with you in the first place. The bank does not withhold if you are under 16, or if the account earns less than $420 of interest for the year.
What not to do
Two common ideas backfire. The first is simply not declaring interest, which the ATO’s data matching catches and treats as evasion, not a shortcut. The second is putting large savings in a young child’s name to use their tax-free threshold. A child’s unearned income, such as bank interest, is taxed at penalty rates as high as 66% once it passes just $416 a year, a rule designed to stop exactly that move. Small amounts in a child’s account are fine, but it is not a tax shelter.
Getting the mix right
Which of these suits you depends on your income, whether you have a mortgage, and how long you can leave the money untouched. Some of them, particularly super and investment bonds, are financial decisions as much as tax ones, and can need a licensed financial adviser alongside your accountant. This is general information, not personal advice, and the right combination depends on your own numbers.
