A common question we receive at BestCashCow is whether a holder of a savings or CD from a bank needs to pay taxes on the interest generated from those accounts. The short answer is: yes. Interest from FDIC insured accounts (savings accounts, CDs, interest checking, rewards checking) is taxable in the year in which it is received.

In most cases, your financial institution will send a 1099-INT form that indicates the amount of taxable interest you received over the course of the year. It is this number which you should report on your tax form. If you do not receive a 1099-INT and have an interest bearing account, you are still responsible for reporting your income. The IRS expects that you will contact your financial institution and find out the correct information so not receiving 1099-INT or any interest statements by mail is not an excuse to ignore the interest income.

If you have earned more than $1,500 in interest or more than $1,500 in dividends you will need to file a Schedule B, which prevents you from using a form 1040A or form 1040EZ. Note that dividend and interest income are each treated independently in triggering a Schedule B. If you earn $1,000 in interest and $1,000 in dividends, you do not need to file a Schedule B, but if either interest or dividend income is over $1,500 in a given year, you will need to file Schedule B.

Interest on Long-term or Non-maturing CDs

Interest earned on CDs, even if they did not mature in the tax year, is taxible in the year in which it is credited to your account for all CDs greater than 1-year. Even if the bank or credit union did not send you a check for the CD interest earned, but credited it to your principal balance, you still need to report that income on your taxes. The rule holds true even if you do not have the right pursuant to the terms of the CD to access the income. For this reason, some some people prefer to open CDs with their IRA funds, as the income on an IRA CD may accumulate in a tax deferred manner.

For specific questions, please ask a qualified tax accountant.

It is tough to earn next to nothing in a savings account and be excited about it. Provided you keep $100,000 in total assets with Merrill Lynch or $50,000 in cash with Citibank, you can now make up a lot of lost interest in the form of travel rewards by pairing your account with credit cards that extend certain benefits for preferred customers.

The Bank of America Travel Rewards card offers 1.50% cash back in the form of a direct credit on travel expenses for each dollar spent on the card. While this offer does not compare favorably to other travel and rewards cards on its face (see the best cards for spend here), the cash back amount is augmented by 75% for those holding balances over $100,000 at Bank of America, Merrill Lynch or Merrill Edge accounts (whom the bank designates as Platinum Honors for credit card purposes). The 75% augmentation takes the cash back percentage to 2.65%. While BestCashCow’s own rankings indicate that other travel and rewards credit cards offer value on spend in excess of 3%, the 2.65% return on spend is well in excess of what is offered through any cash back program. It is also highly desirable for those seeking maximum flexibility in how they redeem spending credits that they have earned through their credit cards as it does not require membership in an air miles or hotel point program, or trying to find those rewards through the program that maximize redemption value. You’ll also get 10,000 points – worth $100 – just for signing up for the card.

While qualifying for Bank of America’s Platinum Honors status does not make sense if you are holding $100,000 in cash at virtually no interest, it can make a lot of sense to hold and use this card if you qualify through holding equities, debt instruments or other securities in a Merrill or Merrill Edge account.

Full details on the Bank of America program and what is required to qualify for Platinum Honors status are available here.

Citibank offers the Prestige Card that delivers 3 points for travel (including gas), 2x for restaurants and entertainment and 1x for everything else. BestCashCow.com rates this card and the Citi ThankYou Premier card, its first year no fee sibling, as outstanding travel and rewards cards for recurring spend and for their 50,000 point sign up bonuses. In particular, BestCashCow.com sees at least 3 cents per point in value on Singapore Airlines Krisflyer, but points can also be worth 1.6 cents each when redeemed against charges from American Airlines.

For a $450 annual fee, the Prestige Card offers an array of benefits including a $250 annual air travel credit (which over two years more than covers the fee), entry to American Admirals club, global entry reimbursement, a fourth night free on consecutive hotel stays and four rounds of golf that the regular ThankYou Premier Card does not offer (read more on the difference between the two cards here). For those with CitiGold status (ordinarily $50,000 in account balances), the points earned through the Prestige Card are augmented by 15% so that travel earns 3.45 points, restaurants earn 2.30 points and everything else earns 1.15 points. Moreover, the annual fee is reduced to $350 and the signup bonus increased to 60,000 points (although it should be noted many non-Citibank account holders have reported getting these benefits simply by applying for the card in a branch). The reduced fee and the increase in points make an already outstanding travel and rewards card still better for Citigold members.

Full details on qualifying for CitiGold are available here.

The augmented credit card rewards that Bank of America and Citibank are offering to their cardholders who maintain qualifying accounts are interesting. However, before account holders at these banks rush into these cards, it makes sense to run the numbers, comparing these cards with the rewards that you might accumulate through other credit cards. If you are qualifying by holding cash, you should also factor in the loss of interest you would otherwise be earning. Leading online banks pay over 1% more in interest in the savings accounts (see the best rates here).

Compare travel and reward credit card sign up bonuses.

The news is pretty bleak, but I still don’t believe that Greece will default. I certainly do not believe that Puerto Rico will default. In Greece, the institutions that hold these bonds (now German banks and US hedge funds) are too sophisticated to force a situation where they receive nothing, than to allow a situation where they recover a restructured bond. The voting electorate is also too smart to vote for a continuation of the utter chaos they will see this week. Same will be true in Puerto Rico. Everybody will back away from the brink. These places are simply not analogous to Russia or Thailand in 1997, or Argentina more recently.

If we were to see a Greek default, there will be increased dislocation and volatility in the equity and debt markets. The reality however remains that Greece is such a small part of the European economy, it will not have a major impact on anything. Austerity in Europe will probably continue, but the US will continue its path towards pulling out of the low interest rate environment that we have been in. In short, Greece is just to small and inconsequential and events there are not going to cause the rush to safety in the US that would drive long term bond yields back down.

I predict that interest rates will continue to rise towards a more normalized level with Janet Yellen and the Fed still on track to raise interest rates in September or October. The 10 year Treasury will end the year closer to 3% than to 2% and savings rates will continue to move up gradually. The bond bubble will begin to burst and this is a good time to favor cash over bonds.

Find the best savings rates here.