Now that tax season is over for most people, more than 60%1 of tax filers will receive a refund. Refund amounts are down approximately 9%2 from last year, partly due to pandemic relief programs expiring, but a majority of people will receive an influx of cash into their households.
Are You Getting a Refund?
While many people look forward to getting money back from the IRS, a refund means you took home less net income for the prior year. As a result, perhaps some debt was added to your portfolio, or a home improvement had to be put off.
Now that you have a chunk of money returning to you, what do you do with this “bonus?” For many, there may be a temptation to splurge, however; with interest rates rising, splurging could add to your existing debt. On the flip side, rising interest rates can mean making gains in savings, emergency funds, and retirement accounts.
Some money-saving ways to use your refund include:
- Paying off credit card debt. The average credit card interest rate is almost 21%, the highest since the Federal Reserve started tracking APRs (annual percentage rates).3
- Adding or starting an emergency fund. An emergency fund helps you plan for the unexpected. A Welcome Federal Credit Union(WFCU) Money Market Account may be the right place to start that fund.
- Adding or starting a retirement fund. There are many retirement investment vehicles available. The product you choose to invest in depends on where you are on the retirement timeline. At WFCU, there are IRA Share Certificates and Certificate Accounts yielding excellent returns.
- Seeding a 529 Plan. The advantage of a 529 plan is that your investment will grow tax-free if the funds are used for eligible college expenses.
- Saving for the holidays. It’s never too early to save for special occasions or holidays.
Although spending your refund on an impulse purchase may be exciting, investing in improving your overall financial standing is the best money move in this volatile economy. Meet or speak with one of our branch representatives or our Certified Financial Counselors to learn about the different financial products available to you. They have the financial knowledge to help educate and guide you on what works best for your current situation. You’re always welcome at WFCU!
1 https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-april-28-2023
2 https://abc7.com/irs-tax-season-taxes-refunds-2023/13087791/
3 https://www.cbsnews.com/news/average-credit-card-interest-rate-record-high/