You may not know it yet, but a very large majority of us are going to get nice tax refunds this year thanks to tax law changes last year.  Maybe you saw it coming and already adjusted your withholding, but odds are 99% of us didn’t. I want to encourage you to not think of this as an instant trip to Disney World, but instead use it wisely so it will pay off even more in the future.

First before we go any further head over and use the IRS withholding Calculator so you can adjust your withholding for 2019.  There is no need to let the IRS be a savings account for you all year, while a refund is nice they don’t pay interest!  The goal should be almost no tax refund back.  

Now, what to do with the money you overpaid in 2019!

5 Ways to Save Your Tax Refund

Online Savings or Money Market Accounts

While having a local bank is great, you should consider putting any extra amounts of money into online banks.  They are paying up to 1.75% interest right now compared to most local banks that pay maybe .35-.45%.  The difference in real money… On $2,000 your yearly interest would be $35 compared tothe local bank giving you $7.

CD Accounts

CD accounts are a type of savings account that you aren’t allowed to touch for a set period of time. Current interest rates for a $2,000 CD are up to 3.75% (best is at Navy Federal right now) and most are 12 month or 24 month CDs. Over 1 year that would earn you $69 back in interest. See current rates at other banks.

Note:  If you don’t already have an emergency savings account and have a high chance of needing this money, you don’t want to go with a CD.  The fee for touching it early will outweigh any earnings.

Health Savings Accounts

For folks with a high deductible insurance plan (you don’t pay co-pays but have everything apply to a deductible) then you should also have a health savings cccount. This is a pre-tax savings account that you can put money into. That means it lowers your total income and you don’t owe any tax on the amount in the account. Depending on your insurance deductible, you can put up to $6500 a year in this account.  It’s okay to only partially fund it if you don’t have that much.

Even though you are putting your tax refund in, you’ll still get to take that off your income taxes next year! That’s a double win!

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