4 Ways to Grow Your Tax Refund
If you expect to earn a tax refund this year, you have a great opportunity to invest in your future, but it can be difficult to know where to start. Luckily, you have options as there are many different types of savings accounts and investments that can help you grow your tax refund over time. Here are four ways to get started.
1. High-Yield Savings Accounts
One easy way to grow your money, while also keeping it accessible, is by opening a high-yield savings account. These accounts have higher interest rates than traditional savings accounts, so you will earn more on your money over time. You can also set up automatic transfers into your high-yield savings account each month, which will ensure that you are consistently building your nest egg. This is a great solution for short-term savings you plan to utilize in the near future, like money you’re saving for a down-payment on a car.
2. Certificates of Deposit (CDs)
CDs are another type of savings product offered by banks and credit unions. When you purchase a CD, you agree to leave the money in the account for a certain period of time in exchange for higher interest rates than those offered by regular savings accounts or money market accounts. CDs usually have terms ranging from three months to five years, although some may last longer or shorter periods of time. The longer the term length, the higher the interest rate will be on your CD—but keep in mind that if you need access to your funds early, there may be penalties associated with withdrawing the money before its maturity date.
3. Investing in Stocks and Bonds
Another way to grow your tax refund is through investing in stocks and bonds. Investing involves buying shares in companies or government entities in order to increase your wealth over time as their value rises or they pay dividends on their stock prices. While stock markets can be volatile, they offer an opportunity for long-term growth potential that savings products don’t provide.
4. Mutual Funds
Mutual funds are collections of stocks and bonds managed by an investment professional or team who research potential investments to include within the fund's portfolio and manage its performance against predetermined objectives like growth or income generation. Investors buy shares within these funds instead of buying individual stocks or bonds directly—so while their returns may not be as large as if they had invested directly into specific companies themselves, mutual funds offer instant diversification across multiple asset classes which helps lower overall risk associated with investing.
The Takeaway
While it can be tempting to spend your tax refund on something fun like new electronics or a weekend getaway, saving or investing it can help you grow that money and can help you make faster progress towards your financial goals. For short-term goals, you can turn to a savings vehicle like a high-yield savings account or CD. If you have time on your side, you can invest your money in stocks, bonds, or mutual funds to experience longer-term growth.