4 Best Banking Services To Grow Your Tax Refund
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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If you’re eagerly awaiting your tax refund to spend it, you might want to think about other options. It’s important to remember that a tax refund isn’t free money — it’s your money that you essentially loaned the federal government.
When you get that money back, if you can invest it in a banking service or product that adds interest to the amount, it somewhat makes up for the fact that you let the government have that money without a return on your investment.
Here are some banking services that can help you grow your tax refund.
High-Yield Savings Account
One of the simplest and yet most effective ways to immediately grow interest is to put your tax refund into a high yield savings account (HYSA), according to Jay Zigmont, CFP, founder and CEO of Childfree Wealth®.
“Keep in mind that a HYSA usually offers a much higher interest rate than your local savings bank,” he said.
Money Market Account
For people who want to retain access to their funds but still reap the benefits of growth, a money market account can be a great option. These accounts work like a bank account, but because of how they invest your money, they can deliver a higher interest rate, typically, than a regular savings account. You may want to shop around, however, as every bank will offer a different rate and services may vary.
Roth IRA
Another great vehicle for your refund is a Roth IRA if you qualify, Zigmont said, a retirement account for your after-tax dollars where the gains grow tax-free and you can withdraw the money upon retirement without paying taxes as well.
“You can fund your Roth IRA for the previous year up until April 15th, otherwise you can make a contribution for the current year.”
Certificates of Deposit
For people who don’t like to take much of a risk with their money, or who might only want to leave it tied up for a set period of time, a certificate of deposit (CD) is a great vehicle for results you can literally count on.
A CD locks in a term and a rate and when that term is up — say anywhere from six months to 18 months — your earnings will be predictable but also safe. These accounts are good when interest rates are high overall, or if you’re trying to put money somewhere that you can’t touch it for just a short period of time.
If you’re uncertain which bank service is right for you, consult with a financial advisor.
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