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Taxes

Interest income

Many savings accounts pay interest. Bonds and other fixed income investments do too.
2 minute read

Points to know

  • Interest is taxed at your usual income tax rate.
  • "Interest dividends" from funds are taxed like regular interest.

What's interest?

Even if you're new to investing, you're probably familiar with interest income. It's paid by many bank products like savings accounts and CDs (certificates of deposit). It's also paid by bonds and money market products.

If you own bonds or money markets through a mutual fund or ETF (exchange-traded fund), the interest payments will go to the fund and will then be passed on to you as "interest dividends" (which are treated as interest for tax purposes).

Some bonds issued by government entities have special tax treatment.

Get information on the tax treatment of government & municipal bonds

What's the tax rate on interest?

Interest income is taxed at your usual income tax rate.

How is interest reported?

Interest on individual securities is reported to you and to the IRS on Form 1099-INT. Interest paid by funds is reported on Form 1099-DIV.

See more about tax forms

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How government bonds are taxed
Whether they're issued at the federal, state, or local level, all government bonds have some sort of tax exemption.

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