Paying Taxes on Your CD Account Interest

Paying Taxes on Your CD Account Interest

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Are you expected to pay taxes on the interest you earn with your CD investments?

CD investments are a great way to get your money to work for you. However, just like any other account and investment, the IRS is going to want their cut before you can enjoy your money. You can’t get away from it. But do you know how to pay the taxes on the interest you earn from your CD account?

When you earn interest on the money in your certificate of deposit, this is considered interest income and it is taxable for the year in which the interest is earned. The bank at which you have your CD account will typically send you a 1099-INT at the end of each year when you held the CD. It is up to you to fill it out and report the interest earnings to the IRS. The amount of taxes you will pay will reduce the amount that you get to keep once the CD matures.

In most cases, you will be required to pay taxes on the interest either when you receive the money in your hands or when you are able to take the money without paying large penalties. This means that if the bank sends you a 1099 after the first year of your CD and it doesn’t mature for a few more years, you can often defer the tax payments until full maturity. However, it is always best to speak with a certified tax advisor in these cases to avoid any penalties by the IRS. Individual circumstances differ so always seek professional advice in tax matters.

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Bank Product Term Interest Rate (APY)
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