If you’re putting money away in a savings account, chances are you’re earning a return on your investment. Depending on how much interest you accrue on your deposits, you may have to pay tax.
By comparing your savings options with Savvy, you can find an account which gives you the best after-tax return. Reading our detailed guide will make working out your taxable income simple and provide you with tips to get the most out of your money.
The short answer is yes. One of the advantages of a savings account is the ability to earn interest on the money you put away. The interest you earn on your savings is viewed as income by the Australian Taxation Office (ATO) and must be declared on a tax return at the end of the financial year. You don’t need to declare your whole savings, just the interest you earned on it. All interest must be declared, even if the funds earning it were not subject to tax. How much tax, if any at all, you have to pay is determined by your gross income.
If you’re operating a child’s savings account for your son or daughter, you will still need to declare any interest you earn. It’s up to you as the parent or guardian to file a tax return on their behalf. Under tax office rules, however, you only need to pay tax if the amount of interest you earn annually eclipses $416.
Failing to declare interest earned from your savings accounts could land you in hot water with the tax office. The ATO receives a report from financial institutions detailing who interest is paid to and how much. You could face a penalty or a small tax return if this information doesn’t match what you supplied on your tax return.
The amount of tax you pay directly correlates to what income tax bracket you fall under. The more you earn from all your income sources, the more tax you’ll have to pay. These tax brackets include:
Savings accounts come with several ever-changing variables. Picking an account with a strong mix of features can boost your balance and avoid your hard-earned money being eaten away by tax. Comparing these factors with Savvy will ensure you have more money left over after tax time.
High interest rate
A high interest rate facilitates faster savings growth, which is why it’s important to search the market for the best rate of return on your money. It won’t just fast-track achievement of your savings goals, but will also earn you more interest on your funds. For instance, depositing $1,000 every month into an account earning 0.5% p.a. will net you about $1,000 in interest over six years. However, if you invested at a rate of 1.5% p.a. instead, your interest earned would be just shy of $3,300.
Typically, savings accounts don’t come with many fees. The main ones, such as $5 monthly account keeping charges, are usually waived upon meeting certain monthly requirements. However, it’s still important to weigh these up when you’re shopping around. Finding a fee-free account will avoid your interest being swallowed up by avoidable costs.
Removing the temptation to tap into your savings can be the key to growing your balance. Term deposits lock your money away for a fixed period, with your funds unavailable until the date of maturity. Choosing to reinvest your funds into your account allows your interest to compound, boosting the interest you earn. Savvy’s handy compound interest calculator can simulate how much you could earn by leaving your money untouched.
Institutions offer bonus high interest rates if you meet monthly account conditions, such as minimum deposit or balance requirements. These bonus rates are up to ten times higher than the base interest rate on these accounts and sometimes more. When shopping around for the best deal, ensure you pick an account with the most manageable set of conditions so you'll be able to earn your bonus interest.
Setting a savings goal
Having a savings target to work towards can motivate you to put more money aside so you can reach it. Set yourself a goal and budget how much you can afford to put towards it each fortnight. You can even set up automatic transfers from the account your wages are paid into to streamline the process. To help with your budgeting, use Savvy’s income annualisation calculator to forecast your earnings and estimate how much you can put away over 12 months.
Are you looking to grow your savings? Compare a wide range of savings accounts with Savvy so you find the best deal in Australia and the highest interest rate to help grow your savings.
|Rabobank High Interest Savings Account|
Rabobank’s High Interest Savings Account helps grow your savings while offering flexibility and easy access to your money.More details
Disclaimer: Savvy is not advising or recommending any particular product to you. We provide general information on products for the purposes of comparison, but your personal situation or goals are not considered here. Although we try to make our comparisons as thorough as possible, we do not have information on all products on the market on our site.
You should always consult a given offer's PDS or further documentation in the process of deciding on which loan to choose, as well as seeking independent, professional advice. If you decide to apply with one of the lenders listed above via our website, you will not be dealing with Savvy; any applications or enquiries will be conducted directly with the lender offering that product.
Use our savings calculator to help you calculate how much you could save over a set timeframe based on different deposit sizes and frequencies.
Your savings can put in work for you. Crunch the numbers to see how much interest you could earn on top of your interest by compounding daily, monthly and annually.
It's crucial to have a clear idea of your monthly household budget to see where your money is going and where it could potentially be better spent.
If you're applying for a loan or need to know what your salary is for your tax return, you can use our annualisation calculator to work out what you'll earn this financial year.
Setting savings goals is important. With this tool, you can work out how much you'll need to deposit to reach your financial aims over a set timeframe.