Tax Day is a couple weeks away, and tax refunds are flying out of Washington, D.C. In 2017, 111 million Americans received tax refunds, with the average payout being $2,895.
Even if you only receive $1,000, you can and should use the money wisely. U.S. News contributor Geoff Williams shares three ways to do just that:
1. Put the refund into a savings account. The national interest rate for a savings account is relatively low but getting higher—0.07 percent APY (annual percentage yield), according the Federal Deposit Insurance Corp. That means over a year’s time, your bank account will have an extra 70 cents in it. But rates are expected to continue to rise, and the point of putting money away isn’t only to grow it, but to have access to it if you need it.
2. Use the refund to pay off credit card debt. Paying off debt is a strategic way to spend your windfall. “The average credit card balance amongst Americans is at an all-time high, and the savings rate per American is at the second-lowest rate in recorded financial history,” says Mark Kohler, a certified public account and senior tax advisor for TaxSlayer, an e-filing service based in Georgia. “The economy is doing great and we have the opportunity to use any extra money to get out of debt and save for the future.”
And according to a 2018 study from Experian that analyzed the state of credit and debt in America, the average American has a credit card balance of $6,375. Paying off $1,000 wouldn’t eliminate all of that debt, but it would help.
3. Put the refund toward your retirement. A thousand dollars would pad your retirement fund nicely, and it’s just enough to get you started if you haven’t begun saving for retirement. Though some financial firms require a minimum of $5,000 or more to get a retirement account started, there are funds offered by companies, like Vanguard Group, the Charles Schwab Corporation and T. Rowe Price, just to name a few, that have retirement accounts that require a minimum of $1,000 to get started.