Made Money on CDs in 2024? Here's How Much You'll Owe the IRS

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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.

If you decided to get in on the action by opening CD accounts in 2024, then you'll owe taxes on the money you earn from CDs this year.

Fortunately, there's plenty of good news, too:

1. You took advantage of CD rates at their peak.
2. Figuring out how much you'll owe in taxes is a straightforward process.
3. 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, which includes any money you earned on CDs this year, is taxed at the same rate as ordinary income. It takes a few steps to calculate your income tax rate, which depends on your gross income, deductions, and more. But the good news is that you don't have to.

Before you file your 2024 tax return, your financial institution should send 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.

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