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Just like any other source of income, interest you earn from a savings account is subject to tax.
When you file your income tax return at the end of each financial year, declare all your sources of income, including your salary and income earned from investments. This includes declaring any amount in your savings that has earned interest.
But at what rate is the interest you earn taxed and how can you get the best possible investment returns from a savings account? Read on to find out.
How do I find the best savings accounts for my tax needs?
Compare interest rates. The rate of interest will obviously play a huge role in determining how quickly you can grow your savings balance. Compare interest rates between accounts to see which ones offer the best deal.
Watch out for traps. Keep an eye out for some common traps attached to savings accounts. For example, an account may only offer the high interest rate advertised for a limited introductory period, while you may need to satisfy certain criteria (for example deposit a certain amount each month) in order to achieve the maximum rate of interest.
Look at all the account features. The interest rate isn’t the only factor that affects whether or not a savings account is right for you. Check for hidden fees and charges, whether you are able to access your funds at any time, and how you can manage your account before deciding on the right account.
Consider inflation. When considering the returns provided by a savings account, remember to take into account inflation as well as the tax you need to pay on interest. Factoring in the effects of inflation increases the overall effective tax rate on your savings balance, so it’s important to shop around for an account with a high rate of interest.
Use a comparison service. Comparison services like finder.com offers a quick and easy way for you to compare the interest rates, features and fees of multiple savings accounts. Start comparing a range of accounts today.
Ask your accountant for help. For any advice on savings account interest and how it will affect your income tax return, ask your accountant or financial adviser for expert assistance.
Adrienne Fuller leads the publishing team at finder.com. She has one goal: to deliver the accurate and transparent information she wishes she had when she made some of life's important financial decisions. When she's not helping folks save money, she's hiking with her two Catahoulas around her home in San Diego.
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