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How and when do you pay tax on term deposit interest?

a couple looking at term deposit tax questions

A term deposit is one of the easiest and safest ways to invest your savings. Just lock up some cash for a set period and let the interest do the rest. Since a term deposit is fixed interest, you’ll get a predictable amount for the agreed-upon term even in the event that the RBA changes the cash rate.

But do you have to pay tax on that interest? If you've been thinking about signing up for a term deposit, we've answered some commonly asked questions.

Is interest from a term deposit taxed?

Yes. Just as with savings accounts, the interest earned on a term deposit is treated as income by the Australian Taxation Office (ATO). The amount is combined with other assessable sources of income - such as employment income, superannuation payments, and earnings from investments - and are taxed accordingly.

When do I need to declare interest?

Depending on the frequency of interest payments, you’ll either have to declare interest once your term deposit reaches maturity or when your bank credits the interest to your account.

If interest is only paid out at maturity, things should be fairly straightforward. Whichever financial year the maturity date falls under, that’s when you’ll have to declare interest. This applies even if the investment period spans several years.

It gets a bit messy if interest is credited to your account throughout the term (such as on a monthly basis), as this might split your interest income schedule over more than one financial year. If this is the case, you’ll need to declare any interest on the financial year in which you received it.

What if my term deposit is jointly held?

If a term deposit is held by multiple people, the ATO will assume that the funds are equally shared and any interest earned will be split equally among the account holders.

For example, if there are four account holders, each person will receive 25%. If the funds aren’t equally shared, you’ll have to provide some documentation to prove it.

Come tax time, you'll only have to declare your portion of the interest. So if you hold an account with your spouse that earns $500 in interest in a financial year, and the funds are equally shared, you’ll enter $250 on your tax return and your spouse will enter $250 on theirs.

What if I roll over my term deposit, including the interest earned?

Many banks automatically reinvest your term deposit once it reaches maturity unless you instruct them to do otherwise. If you allow your term deposit to be reinvested along with the interest it has earned, you’ll still need to declare that interest at the rollover date.

Do I need to provide my Tax File Number when I open a term deposit?

When you sign up for a term deposit, you’ll be asked to provide your tax File Number (TFN) by your bank. While you’re under no obligation to give this information, it will really help make things easier come tax time.

If you don’t provide a valid TFN (or TFN Exemption), your bank is required by law to withhold tax from any interest you earn, and it will do so at the highest marginal tax rate. Withheld tax will then have to be claimed when you lodge your tax return.

What happens if I declare interest incorrectly?

Financial institutions report the amount of interest they pay out to customers to the ATO, which then cross checks this information with the amount each person declares on their tax return. If there are any discrepancies you can be confident they'll be detected pretty quickly, and will result in either an adjustment to your return or a penalty.

If you fail to declare any interest in your tax return, you might receive a letter from the ATO informing you of the mistake. The ATO will then send you an amended assessment after a period specified in the letter, and the details of any omitted interest will have to be submitted to them within this timeframe.

Looking for somewhere to stash your savings? Visit our term deposit interest rates page for an overview, or browse the selection below. Alternatively you can the Mozo Experts Choice Award Term Deposit winners to find someone of the bests in one place.

Term deposit comparisons on Mozo - last updated 23 April 2024

Search promoted term deposits below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Term Deposit

    4.75% p.a.
    1 year

    $1,000

    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

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  • Online Term Deposit

    5.00% p.a.
    7 months

    $5,000

    Yes up to $250,000

    No set-up or account keeping fees. Deposits up to $250,000 per customer are guaranteed by the Australian Government. Mozo Experts Choice winner for Term Deposit 2022.

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  • Term Deposit

    4.80% p.a.
    9 months

    $1,000

    Yes up to $250,000

    Enjoy the certainty of a fixed interest rate combined with the convenience of online banking to set up and manage your term deposit at maturity. You can start investing from as little as $1,000 or up to $5,000,000.

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    Details
  • Mozo Expert Choice Badge
    Term Deposit

    4.85% p.a.
    6 months

    $1,000

    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

    Compare
    Details

* Different interest rates apply to different amounts or different interest payment frequencies.

^See information about the Mozo Experts Choice Term Deposit Awards

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