Interest on a savings account is income. The IRS taxes it in the year you earn it, whether you spend it or leave it in the account. Your bank reports it on Form 1099-INT if you earned $10 or more, and you report it on your return.
Run the numbers. $20,000 at 4.5% earns $900 in a year. If you're in the 22% federal bracket, that's $198 in federal tax, and you keep $702. Your real return after federal tax is 3.51%, not 4.5%. Most states with an income tax, Oregon included, tax interest too, so the real return is lower again. The rate and your bracket will differ from this example.
Two things make this bigger than it looks. First, the tax comes out every year, so it comes out of the money that would have compounded. Second, taxable interest counts toward the income that decides how much of your Social Security gets taxed. I explained the formula in how up to 85% of your Social Security can be taxable. For a retiree, a big savings balance can push a benefit into taxable territory.
That's why I look at where each dollar sits and not just what it earns. A Roth IRA grows with no yearly tax bill and comes out untaxed when you follow the rules. Cash value in a life insurance policy grows tax deferred, which means no 1099 each year, and you can reach it through loans, which aren't income while the policy stays in force. A loan reduces the cash value and death benefit while it's outstanding. Each of these has limits. A Roth has a yearly contribution cap, and a policy has costs and a funding limit called the MEC line. A bank account has none of the tax advantages, but it's simple and it's the right place for the cash you need this month.
Your tax preparer can confirm the details, since I'm a broker and not a CPA. Pull out your last Form 1099-INT and multiply the interest by your tax bracket to see what your savings account costs you in tax.