Are interest income on your certificate of deposit subject to tax?
Certificate of deposits can be a sound portfolio. It is considered to be the safest investment one can have. The certificate of deposit rates are pre-determined and you are guaranteed to gain interest income at the end of the maturity period. The term or maturity period of a certificate of deposit could vary. The term could be from 3 months to 10 years, which most banks offer.
Certificate of deposits are a safe haven to investors as it guarantee a fixed interest income for a specific period of time. Best of all, the certificate of deposit itself is not taxable. The interest income varies depending on how much money is invested and for how long. In other words, the shorter you keep your money in a certificate of deposit account, the lower your rate of return. However, while a certificate of deposit is tax-exempt, the corresponding interest income is not. The interest you earn on your certificate of deposit account is subject to tax.
If you have a 12 month certificate of deposit of $5,000.00 in the bank and upon maturity you earn an interest income of say $150.00, the $5,000.00 is not taxable, but the $150.00 is. Only the interest income, which in this case is $150, is taxable.
Earnings on certificate of deposits are taxable in the year it is earned even if you do not take the money out.