What Is My Interest Income on My Saving Accounts?
A savings account is an excellent vehicle for building an emergency fund, or for keeping your cash safe while you save for a major purchase. While you will not get rich putting money in a savings account, you will protect your principal while still earning a small amount of money for your trouble. And if you shop around, you can find a savings account with a higher-than-average rate of interest and earn even more.
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Statement Details
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Unlike the interest rate on a certificate of deposit, the interest rate on a savings account is subject to fluctuation. When you first shopped around for your savings account, you no doubt sought out the highest rate of return you could find. But as time passes, that once great interest rate could fall, meaning that competing banks can offer you more for your money. Each time you get your statement, take the time to check the current rate of interest and compare it to what other banks are offering. If you can raise your rate significantly it might be worth your while to move your money where it will earn the most interest.
1099-INT Form
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Near the beginning of each year, you will receive a form called a 1099-INT. This form is used to report all of the interest paid on your savings account during the previous year. The bank sends you a copy of this important form, but it also sends a copy of the same 1099-INT form to the IRS. If you fail to report the interest income you received to the IRS, you can expect to receive a bill for additional taxes, and possibly for interest and penalties as well. Make sure you have all of your 1099-INT forms in hand before you file your taxes.
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Monthly Figures
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Each bank statement you receive shows the amount of interest your savings account earned for that month. This allows you to keep track of how much you are earning on your savings account. This can be important for a number of reasons, including tax planning and advance tax preparation. Tracking how much interest you receive from month to month also lets you see how you are doing. A sudden drop in the amount of interest you earn could indicate that it is time to shop around for a better rate at another bank.
Year-to-Date Earnings
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Each bank statement you receive should show the year-to-date interest you have received. This year-to-date figure should be listed right under your monthly earnings, and it can be a very valuable figure for your tax planning as well. Once you receive your final bank statement for the year, you can do some preliminary tax planning to determine how much you might owe in taxes on the interest you received from your savings account.
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