Think back. Remember when CD rates hit historic highs? Oh wait, that was only weeks ago — before the Federal Reserve hinted that it would drop the federal funds rate, and banks lowered the amount they paid on CDs in anticipation.
While the days of high APYs may be behind us (for now), it’s essential to plan for the taxes you’ll owe on any money you’ve earned on CDs thus far this year.
Fortunately, you have several factors going for you.
- You were able to take advantage of CD rates at their peak.
- Figuring out how much you’ll owe in taxes is a straightforward process.
- Although CD rates have slipped, it’s not too late to snag a higher-than-typical rate before they drop more.
How CDs are taxed
Interest income, like any money you earned on CDs this year, is taxed at the same rate as ordinary income. To figure out how much you’ll owe, you first need to know your tax bracket.
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2024 tax brackets
| Tax rate | Single Filers | Married Couples Filing Jointly | Married Couples Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $11,600 or less | $23,200 or less | $11,600 or less | $16,550 or less |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,526 to $191,150 | $100,501 to $191,150 |
| 32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,151 to $243,725 | $191,151 to $243,700 |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,276 to $365,600 | $243,701 to $609,350 |
| 37% | $609,351 or more | $731,201 or more | $365,601 or more | $609,351 or more |
Data source: Internal Revenue Service.
For example, if you’re a single filer with an adjusted gross income (AGI) of $75,000, you fall in the 22% bracket. This means that the interest you earn on CDs is taxed at 22%.
Let’s say you put $10,000 into a 12-month CD. The CD offered an APY of 5.10%, and by the time it matured this year, you’d earned $523.
Because you’re in the 22% tax bracket, you’ll owe $115.06 in taxes ($523 x 0.22 = $115.06).
How to report CD income
By the time you file your 2024 tax return, your financial institution should have sent you a 1099-INT statement showing how much you earned on your CD for the year. You’ll include the interest shown on your 1099-INT on Form 1040, Line 2b of your federal income tax return.
If you opened a multi-year CD, your financial institution will generally report interest in increments at the end of each year the CD remains open. For example, if you opened a 5-year CD in 2024, you should receive a 1099-INT by the time 2024 taxes are filed. You’ll then receive another statement when it’s time to file 2025 taxes, and so on.
Whether you deposit the interest earned on your CD in a high-yield savings account or roll it over into another CD while rates remain reasonably high, a CD is one more dependable tool in your financial arsenal.
Why opt for a CD?
Here’s the truth: None of us knows precisely how often the Fed will cut rates in the next year or two. We can guess, but don’t know for sure. What we do know is that the rate you’re promised when you open a CD is the rate you earn as long as you don’t withdraw the money before its maturity date. In fact, interest paid on a CD is one of the few “sure things” a bank can offer its customers.
This makes CDs a good fit if you have a set timeline for your money (say, you’re using it for a house down payment in a year or two years), or you want to use the interest earned to cover bills (say, if you’re a retiree slowly withdrawing cash from a retirement account).
Sure, it’s nice to see consumer interest rates drop. What’s a little less nice is losing out on the sweet rates we’ve been earning on deposit accounts. When you’re not quite sure what will happen with rates, it is an excellent time to put money into a sure thing — and in this case, a CD is as close to a sure thing as you can get.
