Are you expecting a tax refund? It could take a month or longer to get that money. While you’re waiting, you can decide what to do with it. Many people look forward to putting their tax refund toward a big purchase or shopping spree, but that’s not necessarily the best way to use the money. Instead, use your refund to help you reach personal and financial goals faster.
Here are five smart ways to make your tax refund work harder and go further.
If you’re dragging around high-rate debt, like credit cards or student loans, consider using your tax refund to pay it down. It can make a big dent in your debt and help move you closer to financial independence.
Once you pay off debt, you’ll be able to put more money in the bank and focus on other financial goals. If you’re struggling with debt, learn more about getting your finances in order.
Establishing or building up an emergency fund is another smart way to use your tax refund. An emergency fund is a dedicated bank account with funds set aside for unexpected costs, like medical expenses or car repairs. Having one can keep you afloat during tough times without any major financial setbacks.
A healthy emergency fund should cover three to six months’ worth of living expenses. Using the newfound money from your tax refund to start or build yours is a good choice, and in the event of an emergency, you’ll be better off because of it.
BrioDirect’s High-Yield Money Market account is an excellent place for your emergency fund. You can open an account with a low minimum opening deposit, and you’ll have convenient access to your money when you need it—all while earning a competitive interest rate. Learn all about money market accounts here.
If you don’t have an immediate need financially, you might consider opening a Certificate of Deposit (CD). CDs offer a guaranteed, high-yield return on your account balance—and you don’t have to wait until retirement to access them, unless you want to. You choose the term that works for you, and your money sits safely in an account, earning interest over the selected time period. Then, when the CD comes to term (also known as reaching maturity), you can access your money and the accrued interest.
Your tax refund doesn’t have to be all about you. Using your refund to establish a child or grandchild’s college fund can be a wise choice—and the education it funds can open new opportunities for your family.
Use your refund to open a 529 College Savings Plan. These plans usually offer federal income tax breaks, and depending on your state, you may be eligible for additional state tax deductions. (Speak to a tax adviser about your specific situation.) Webster Bank offers a College Planning Center to help you explore your options.
Your home is one of your greatest financial assets. Using your tax return to make improvements can build your equity and improve your quality of life. Upgrading old appliances and replacing drafty windows will make your home more comfortable and energy-efficient.
Keep in mind that all home upgrades are not created equal. Installing a swimming pool may sound tempting, but it may not be the best way to spend your refund. Pools include ongoing maintenance costs and can increase your insurance premiums. A kitchen or bathroom update, however, can improve your home’s value and even lower your energy bills.
Before committing to a home improvement upgrade, consider short and long-term costs to decide if you can shoulder the expenses your refund won’t cover.
Still deciding what to do with your tax refund? Park it in a BrioDirect High-Yield Savings account. You can apply for an account online in minutes with an opening deposit of $25. There’s no monthly maintenance fee, and your balances are federally insured up to $250,000.
You’ll even get free access to our new mobile banking app with innovative tools to help you reach financial goals faster.
Have additional questions? Contact us.
*The opinions and views in this blog post are for informational purposes only and are not intended to provide specific advice or recommendations for any individual. Please consult professional advisors with regard to your individual situation.
All deposit products are provided by Webster Bank, N.A. ("Webster Bank"), an insured FDIC institution. BrioDirect is a sub-brand of Webster Bank. Webster Bank operates under the trade name BrioDirect. This trade name is used by, and refers to, Webster Bank, a single FDIC-insured bank.
Accounts that are opened via www.briodirectbanking.com and marketed by BrioDirect are Webster Bank accounts. Deposits in these accounts are made with Webster Bank. For purposes of determining how much FDIC insurance is applicable to your accounts, you need to consider all accounts maintained with Webster Bank, N.A., such as CD, checking, savings, BrioDirect online accounts and cash held in health benefits accounts with HSA Bank.