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, you’ll need to declare all of your sources of income including your salary and income earned from investments. This includes declaring any interest you’ve earned from deposits in savings accounts.
But at what rate is the interest taxed and how can you get the best possible investment returns from a savings account? Read on to find out.Back to top
How do I find the best savings accounts for my tax needs?
- Check 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.
- Compare your options. With so many institutions and products available, it’s important to compare your options to find one that suits your financial needs. Start comparing a range of accounts today, or see our lists of the best savings accounts by specific features.
- 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.