Don't Forget Your Bank Interest — The ATO Already Has It (2025-26)
With savings rates high all year, the interest on your bank account is taxable — and the ATO gets it straight from your bank. Here's how it's taxed and the traps.
The cash rate sat at a 12-year high of 4.35% for the whole of 2025-26, and plenty of savers earned real money on their cash for the first time in years. Here's the part people forget: the interest your bank paid you is income, it's taxable, and the ATO already knows the exact figure — because your bank tells them directly.
It's one of the most common reasons a tax return gets quietly adjusted after you lodge. The good news is it's simple to get right once you understand how it works. Here's the plain-English version for the 2025-26 return you're lodging right now.
Your bank reports your interest to the ATO
Every Australian bank, credit union and building society reports the interest they pay you straight to the ATO after the financial year ends. The ATO then pre-fills it into your tax return at 'Gross interest' (item 10 in myTax), matched to your tax file number.
So this isn't optional and it isn't a guess. If you earned $412 in interest across your savings and everyday accounts, the ATO knows it's $412. When the figures on your return don't match what your bank reported, the ATO's data-matching flags the gap, adjusts your return, and can add interest and penalties on top.
This is exactly why it pays to wait until late July or August to lodge. Early in the season the interest pre-fill is often missing or incomplete — banks report at slightly different times — so a return lodged on 2 July can look 'clean' but be short a few hundred dollars of interest that shows up later.
How your interest is taxed
Bank interest is added to the rest of your income and taxed at your marginal rate — the rate on your top slice of income. There's no separate, lower rate for savings interest, and no tax-free allowance just for interest (unlike some countries). It stacks on top of your salary.
For 2025-26 the resident tax brackets are: nothing on the first $18,200; 16% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above that — plus the 2% Medicare levy for most people.
- On a $60,000 salary, your interest is taxed at 30% + 2% Medicare = 32%.
- On a $150,000 salary, it's taxed at 37% + 2% = 39%.
- Earning under $18,200 in total? Your interest may be taxed at 0% — you're under the tax-free threshold.
Worked example
Say you kept $30,000 in a savings account that paid 4.75% across 2025-26 — that's about $1,425 in interest. On a $90,000 salary you're in the 30% bracket, so with the 2% Medicare levy your interest is taxed at 32%. Tax on the interest: $1,425 × 32% = about $456. You keep roughly $969. The ATO doesn't send a separate bill — it just reduces your refund (or adds to what you owe) when you lodge.
The trap: it's NOT already taxed at the bank
This is the one that catches people out. Unlike your wages — where your employer withholds tax from every pay — your bank does not take any tax out of the interest it pays you (as long as you've given them your TFN). The full amount lands in your account, untaxed.
That feels great during the year, but it means the tax is still owing. If you've been treating your interest as 'free money' and spending it, you can get a nasty surprise at tax time when it pushes your bill up or shrinks your refund. Set aside roughly a third of any decent interest you earn and you'll never be caught short.
No TFN? The bank withholds 47%
There's one big exception. If you haven't given your bank your tax file number, they're required to withhold tax at 47% (the top 45% rate plus the 2% Medicare levy) on any interest over $120 a year, and send it to the ATO. You get it back when you lodge and quote your TFN — but why hand the ATO an interest-free loan? Make sure every account has your TFN recorded.
Joint accounts, kids' accounts and offsets
A few common situations trip people up:
- Joint accounts: the interest is split between the owners — usually 50/50 for a couple. Each person declares their share, not the full amount. Check the pre-fill hasn't landed the whole lot on one of you.
- Children's accounts: if the money really belongs to the child and they operate the account, it's generally their income. But if a parent controls the money and uses it as their own, the parent declares the interest.
- Mortgage offset accounts: money sitting in an offset doesn't earn interest — it reduces the interest you're charged on your loan. There's no interest income, so there's nothing to declare. That's part of why an offset can beat a savings account: the benefit is tax-free.
What to do before you lodge
Wait for the pre-fill to finish loading — late July into August is the safe zone — then check the interest figure against your own records. Most banks let you download an interest summary or a 'tax time' statement showing exactly what they reported.
If the pre-filled figure looks wrong, don't just delete it. Sort it out with your bank first so their report to the ATO matches what you lodge — otherwise the mismatch is what triggers a review. And remember these brackets apply to 2025-26; from 1 July 2026 the 16% bracket drops to 15%, so interest earned in the new year is taxed a touch lower at the bottom.
FAQ
Do I have to declare bank interest if it's only a small amount?
Yes. There's no minimum — all interest is assessable, even a few dollars. Your bank reports it to the ATO and it's pre-filled into your return, so leaving it off creates a mismatch the ATO's data-matching will flag.
What rate is bank interest taxed at?
At your marginal rate — it's added on top of your other income. For 2025-26 that's 16% (income $18,201–$45,000), 30% ($45,001–$135,000), 37% ($135,001–$190,000) or 45% above that, plus the 2% Medicare levy for most people. There's no separate lower rate for savings interest.
Why did my bank take 47% of my interest?
That's TFN withholding tax. If your bank doesn't have your tax file number, they must withhold 47% on interest over $120 a year and pass it to the ATO. Give your bank your TFN to stop it, and claim the withheld amount back when you lodge your tax return.
Do I pay tax on money in my mortgage offset account?
No. An offset account doesn't pay you interest — it reduces the interest charged on your home loan. Because there's no interest income, there's nothing to declare, and the saving is effectively tax-free.
Run your own numbers