Every dollar of interest your savings account earns is taxable income in Australia. You cannot avoid it, but you can legally pay less of it: by using the tax-free threshold and Low Income Tax Offset, quoting your TFN so 47% is not withheld, splitting joint-account interest correctly, keeping children’s accounts compliant, and moving larger balances into structures taxed at less than your marginal rate.
This guide uses the 2025-26 tax brackets and the ATO’s current rules on interest, joint accounts and children’s accounts, checked on 6 October 2026. It also flags what changes from 1 July 2026.
None of what follows is a loophole. Each strategy is the ATO’s own rule applied properly – which is also why each one comes with a record-keeping requirement.
Key takeaways
- Interest is taxed at your marginal rate – 16% to 45% in 2025-26 plus 2% Medicare levy. On $1,000 of interest a $80,000 earner pays $300 tax; a $200,000 earner pays $450.
- Quote your TFN to every bank. Without it the bank withholds 47% of your interest until you lodge.
- Joint accounts are split equally by default. A different split is only allowed where holders genuinely do not benefit equally, with records to prove it.
- A child’s account is only the child’s for tax if the money is theirs. Parents’ money earns parents’ interest, and minors’ unearned income over $416 is taxed at penalty rates.
- Super (15%), investment bonds (30%, tax-paid) and growth assets (50% CGT discount) beat a bank account for money you will not need for years.
How much tax you pay on $1,000 of interest (2025-26)
| Other taxable income | Marginal rate on the interest | Tax on $1,000 interest (before Medicare levy) | With 2% Medicare levy |
|---|---|---|---|
| $15,000 | 0% | $0 | $0 |
| $40,000 | 16% | $160 | $180 |
| $80,000 | 30% | $300 | $320 |
| $150,000 | 37% | $370 | $390 |
| $200,000 | 45% | $450 | $470 |
Rates per the ATO’s 2025-26 resident tax table; LITO and other offsets ignored. From 1 July 2026 the 16% rate becomes 15%.
How is bank interest taxed in Australia?
The ATO treats interest from a bank or other financial institution as part of your assessable income for the year. That includes savings accounts, term deposits, bonus interest, offset-style “interest” paid as cash, and even interest the ATO pays you on a delayed refund. It is added to your salary, business and investment income, and the total decides your marginal rate – the rate on your last dollar. Interest is simply taxed at that rate.
For the 2025-26 brackets – 0% to $18,200, 16% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above – see our guide to ATO tax rates for 2025-26 and 2026-27. The second bracket drops to 15% from 1 July 2026, so interest earned by people in that band is taxed slightly less from next year.
When is savings interest effectively tax-free?
Interest is never exempt, but two features of the system can bring the tax on it to zero:
- The tax-free threshold. If your total taxable income, interest included, is $18,200 or less, there is no income tax to pay.
- The Low Income Tax Offset (LITO). Worth up to $700 for taxable incomes to $37,500, phasing out at $66,667. Combined with the threshold it means many people earning up to roughly $22,500 pay no tax at all, and those a little above pay very little. The ATO applies it automatically – read its Low Income Tax Offset page or our LITO guide.
This is why a retiree, a student or a part-time worker with a large term deposit can often pay nothing on the interest, while the same deposit in a full-time earner’s name is taxed at 30% or more.
Why you must give your bank your TFN
If your bank does not hold your tax file number, it is required to withhold tax from your interest at the highest marginal rate plus Medicare levy – 47%. It is not a fine, and the amount comes back as a credit when you lodge, but nearly half your interest sits with the ATO for up to a year instead of compounding in your account. Quoting your TFN once fixes it.
Children are not exempt from quoting a TFN, and there is no minimum age to get one. The ATO does allow a child under 16 to skip it while an account in their name earns under $420 a year (between $120 and $420 the bank just needs their date of birth). Above $420, no TFN means 47% withholding. If anyone in the family needs one, see how to apply for a TFN.
How are joint accounts taxed?
The ATO’s default is an equal split. In myTax you enter the number of account holders and the total interest, and it divides the interest equally between you. A couple with one high earner and one low earner therefore pays tax on half the interest at each person’s rate.
You may declare a different proportion, but only where the account holders do not benefit equally from the money – for example where one person provided all the funds and treats them as their own – and you must keep records showing how you worked out your share. Changing the split simply because one of you has a lower tax rate, with no underlying difference in who owns and uses the money, is not permitted. If the lower earner genuinely owns the savings, holding them in that person’s own name is cleaner than arguing about a split.
What the ATO sees
Banks report every account’s interest, TFN-withheld amounts and account holders to the ATO, which pre-fills your return. Interest that is missing, or a joint-account share that does not match the other holder’s return, is picked up by data matching. The ATO’s tax return pages explain the pre-fill; our guide to how the ATO detects undeclared income explains what happens when the numbers do not line up.
Children’s savings accounts: whose interest is it?
The ATO looks past the name on the account. Its test is simple: “If you provide the money and spend it as you like, you must include the interest in your tax return.” So a parent who deposits their own savings into an account in a child’s name, and draws on it for the household, is taxed on the interest personally. Pre-fill will even show children’s accounts linked to your TFN or name so you can check.
Where the money genuinely belongs to the child – birthday gifts from relatives, their own part-time earnings – the interest is the child’s. But that does not make it tax-free. Unearned income of minors (people under 18 on 30 June) is taxed at special high rates: the first $416 is tax-free, income from $417 to $1,307 is taxed at 66% on the excess, and above $1,307 the whole amount is taxed at 45%. A child’s account is a good savings habit, not a tax shelter. The ATO’s children’s savings accounts page sets out the rules.
Better places for savings you will not touch for years
Once an emergency fund is in place, a bank account is one of the least tax-efficient places to hold money, because every dollar of interest is taxed at your top rate. The alternatives Australians use legally:
- Superannuation. Earnings inside the fund are taxed at 15% rather than up to 47%. Salary sacrifice or a personal deductible contribution also cuts your taxable income this year, within the concessional cap. See salary sacrificing into super and how to contribute to super. The trade-off is access: the money is locked until preservation age.
- Investment bonds. Earnings are taxed inside the bond at the 30% company rate and, if you hold for 10 years and keep within the 125% contribution rule, withdrawals are not taxed again in your hands. Useful for people on 37% or 45% who want flexibility super cannot give.
- Growth assets. Shares and property produce capital gains rather than interest. Hold more than 12 months and only half the gain is taxed, so a 45% taxpayer pays an effective 22.5% – and nothing until you sell.
- Offset account. If you have a home loan, money in an offset reduces interest you pay rather than earning taxable interest. For a 30% taxpayer, saving 6% loan interest is worth the same as earning about 8.6% before tax.
None of these suits everyone, and super in particular is a long-term decision. For more everyday ideas, see 10 simple ways to pay less tax.
How to report interest correctly
- Log in to myGov and open your tax return in the ATO service (or send your statements to your agent).
- In the Interest section, review the pre-filled amounts from each bank. Pre-fill is usually complete by late July.
- Compare against your annual interest statements, including term deposits that matured during the year and bonus interest.
- Add anything missing – new accounts and small balances are the usual gaps – and correct any wrong joint-account split, keeping a note of why.
- Include TFN amounts withheld so you receive the credit.
- Lodge. Interest the ATO itself paid you is also assessable and is pre-filled.
Rule of thumb
Three checks before 30 June: every account has your TFN; any joint account reflects who really owns the money; and any balance you will not need for five years or more is in super, an offset or a growth asset rather than at call. Those three cover most of the tax people needlessly pay on savings.
Common mistakes
- Leaving a bank without your TFN and losing 47% of the interest to withholding for the year.
- Re-splitting a joint account to the lower earner with no change in who owns the money and no records.
- Treating a child’s account as a tax shelter for parents’ savings, or ignoring the 66% minors’ rate once the child’s own interest passes $416.
- Forgetting matured term deposits and old accounts when checking pre-fill.
- Using last year’s rates. The 2024-25 and 2025-26 brackets are 16/30/37/45%, not the old 19/32.5%.
FAQ about tax on savings interest
Do you pay tax on savings account interest in Australia?
Yes. Interest from savings accounts, term deposits and bonus-rate accounts is assessable income. It is added to your other income and taxed at your marginal rate, plus the 2% Medicare levy for most people. Banks report it to the ATO and it is pre-filled in your return.
How much interest can I earn tax-free?
There is no separate tax-free amount for interest. If your total taxable income including interest is $18,200 or less you pay no income tax, and the Low Income Tax Offset means many people on up to about $22,500 pay nothing either. Above that, interest is taxed at your marginal rate.
What happens if I don’t give my bank my TFN?
The bank must withhold tax from your interest at the top marginal rate plus Medicare levy – 47%. It is not a penalty and you get it back as a credit when you lodge, but your money is tied up until then. Children under 16 do not need to quote a TFN while an account in their name earns under $420 a year.
How is interest on a joint account taxed?
The ATO splits joint-account interest equally between the account holders by default – myTax divides it by the number of holders. You can declare a different share only if the holders do not benefit equally from the account, and you must keep records showing how you worked out your portion.
Is interest in my child’s savings account taxed at the child’s rate?
Only if the money is genuinely the child’s. If you provided the money and spend it as you like, the ATO treats the interest as yours and you must declare it. Where the income is the child’s, unearned income above $416 is taxed at special high rates for minors, so a child’s account is not a tax shelter.
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If you have significant savings, a joint account with uneven contributions or children’s accounts, Nanak Accountants can set the structure up properly and make sure every dollar of interest is declared once and taxed at the right rate. Call 1300 626 258 or book your free 15 minute consultation.
This article is general information only and is not personal financial or tax advice. Tax brackets, TFN withholding, joint account and children’s account rules were checked against ATO sources on 6 October 2026.
