Introducing our NEW Mortgage Rate Relief Program, offering rates approximately 2% lower than current market rates to eligible homebuyers. Find out more!

young father and daughter enjoy time together after investing tax refund wisely

7 Ways to Make Your Tax Refund Count

When you receive your tax refund, it’s easy to dream of places to spend it! But where is the best place to invest it to make it count?

Protecting Your Hard-Earned Dollars.

More than 70% of the nation’s taxpayers typically receive a tax refund averaging nearly $3,000, according to the Internal Revenue Service. To keep things simple, we’ve compiled seven of our best tips to encourage you to use that money wisely:

  • Save for future emergencies. Only about 40% of Americans are positioned to cover a $400 emergency expense. To help yourself prepare for unexpected emergencies, consider opening a savings account that solely serves as an emergency fund, and place all (or most) of your refund in it. Ideally, an emergency fund account should hold about three to six months of living expenses in case of sudden financial hardships – like losing your job or finding a major issue with your car. Some banks offer savings accounts with higher interest rates, so shop around for the rate that will pay you back over time.
  • Pay off existing debt. Pay down current balances either by making additional payments on multiple loans with the highest interest rates or eliminating a smaller debt balance with your refund. Once that smaller debt is paid off, you can use your monthly payment amount that was reserved for the smaller debt to make an additional monthly loan payment (or increase the amount) to start chipping away at your debts and making significant progress in a short time.
  • Save for important future investments. Open (or increase contributions to) a tax-deferred savings plan like a 401(k) or an individual retirement account (IRA). Most banks can help get you set up with an IRA, while a 401(k) is employer-sponsored. You might look into opening a 529 education savings plan to ensure school expenses will be covered when your child reaches college age. Or even consider saving for future health expenses with tax-free dollars by investing in a health savings account (HSA). Any of these options are great to consider when making the dollars you have now count in the near future.
  • Pay down your mortgage or student loans. Make extra payments on your mortgage or student loans each month to save money on interest while reducing the term of your loans. Over time, this will significantly cut down on the total amount you’ll end up paying on your loan because of the reduced term.

Pro Tip:

Be sure to inform your lender that your extra payments should be applied to principal, not interest!

  • Invest with U.S. savings or municipal bonds. The U.S. Treasury allows for savings bonds to be purchased using your tax refund, for as little as $50. Savings bonds earn interest for a maximum of 30 years, and can easily be gifted if you so choose –  they make wonderful gifts for new parents! Consider purchasing a few at a higher increment as a means to easily earn interest without the temptation of tapping into the account.
  • Refresh your home. Use your refund to invest in home improvements that will pay you back in the long run by increasing the value of your home. This can include small, cost-effective upgrades like energy-efficient appliances that will pay off in both the short and long term. If you have more substantial renovations in mind, your bank can help with a home equity line of credit.
  • Donate to charity. The benefit is two-fold: Giving to a charitable organization will make a difference in your community, and you can also claim the tax deduction1 if you itemize and collect a receipt. It’s the gift that keeps on giving!

Whatever option(s) you choose, keep in mind that prioritizing your tax refund monies to create an emergency fund or pay off debts first will help position you for financial comfort the remainder of the year. Financial challenges can arise quickly, and it's critical to have money set aside for those unexpected hardships.

1 Ask your tax consultant about possible benefits and tax advantages.