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With tax season fully underway and with tax refunds substantially larger for many American taxpayers this year, questions about how to spend that money are top of mind. Whether you’re considering paying off debt, completing a home renovation or paying for a vacation, there are limitless options to consider right now. For many other taxpayers, however, spending the refund isn’t really the goal. Instead, saving the funds and growing their interest on the money is preferable. And, despite the interest rate climate cooling in recent years, it can still be advantageous for savers looking for strategic ways to grow their money.
That said, different savings accounts have different structures, rates and benefits for savers, all of which will need to be carefully considered before getting started, especially now with interest rates expected to decline further later this year. Fortunately, there are still viable alternatives for taxpayers looking to earn 4% interest (or more) on their tax refund, starting as soon as the refund hits their bank account. Below, we’ll detail three worth considering this month.
See how much interest you could earn with a high-rate CD account here.
How to earn 4% interest (or more) on your tax refund now
Either individually or in combination with each other, the following three options can result in savers earning a 4% interest rate (or higher) on their tax refund, starting right now:
Open a high-yield savings account
High-yield savings accounts come with rates between 4% and 4.10% right now. That’s $4 earned for every $100 deposited. Or, put another way, these accounts are around 950% more profitable than traditional savings accounts, which employ minimal average rates of just 0.39% right now. Plus, high-yield savings accounts operate in the same way traditional accounts do, albeit with the higher rates, so it should be relatively easy to operate.
That said, the account does employ a variable rate that will adjust over time based on market conditions, so the interest you can earn here may decline if rate cuts are issued later this year. That makes it smart to open an account now, while rates remain competitive.
Get started with a high-yield savings account online now.
Lock in a rate with a CD account
There are multiple certificate of deposit (CD) accounts offering rates that are 4% or higher right now. So, whether you want to lock in a rate for just six months or triple that amount with an 18-month CD account, you’ll be able to secure a rate around 4% right now. And that rate will be fixed, allowing savers to calculate their interest earnings upon account maturity with precision in a way that they can’t with a high-yield savings account.
At the same time, the funds will need to remain in the account until the account has matured, or savers will get hit with an early withdrawal penalty. Don’t get started with too big a deposit, then, without first being confident in your ability to keep it frozen in the account for the full CD term.
Consider the flexibility of a money market account
A money market account has some key features that may appeal to savers looking for a home for their tax refund right now. It comes with interest rates around 4% currently. And it won’t require savers to lock their funds in the account to earn those rates (unlike a CD). It will also allow savers to use the account as they would a checking account (unlike a high-yield savings account), thanks to the check-writing features it employs.
In other words, there are multiple benefits to this account type besides just the interest it offers. That said, these accounts also have variable rates not well-positioned ahead of looming interest rate cuts, so that variability will need to be weighed carefully against the other features the account provides prior to getting started.
The bottom line
High-yield savings, CD and money market accounts all offer savers viable ways to protect their new tax refund and grow it with an interest rate of 4% or more now. But each should be viewed carefully before getting started, and savers should also consider the advantages of splitting their funds among multiple account types versus moving them all into one. This could allow them to earn a high interest rate while still maintaining a baseline of flexibility to pivot later this year. Don’t discount the benefit of speaking directly with a bank representative, too, who can better help you determine which account (or accounts) make the most sense for your tax refund dollars now.