The average tax refund amount has decreased to $2,903, down 11% from last year, but still a significant amount of cash that can be put to good use. CNN Underscored identifies some of the best ways to make the most of a tax refund, including paying off or reducing credit card debt with high rates of interest, taking out high-yield savings accounts and contributing to a retirement account or Roth IRA. Purchasing life insurance and investing in personal development or a new home appliance or other product can also be worthwhile.
High credit card interest rates make paying off or reducing credit card debt a wise way to spend tax refunds. For accounts with interest rates close to 20.40%, an extended minimum monthly payment trajectory can see a $3,000 balance after 113 months and $3,752 in interest charges. Credit card balances can be transferred with a balance transfer credit card, such as the Citi Diamond Preferred Card, which offers an introductory 0% APR for 21 months on balance transfers.
The increasing interest rates can result in savings if invested wisely. High-yield savings accounts such as CIT Bank’s Savings Connect account currently offer a 4.5% APY on deposits. CDs such as 10-month CDs through Marcus by Goldman Sachs have a 5.05% APY, available to those with at least $500 to spare.
Investing in retirement accounts or traditional and Roth IRAs is also a wise choice for those looking to use their tax refunds. The maximum contribution is $6,500 annually across all IRA accounts with those aged 50 or older able to contribute an extra $1,000.
Buying life insurance is also an important investment that can potentially cost less than dining out. Term life insurance rates start at just $11 per month with providers such as Bestow offering coverage in amounts from $100,000 to $1.5 million.
Investing in personal development or indulging in a well-deserved purchase is also a viable use of one’s tax refund. Investing in a gym membership, educational courses or products can set the stage for long-term success. A new purchase or experience, such as a vacation or new laptop, can also brighten up one’s life while not spending the entire amount on a single expenditure.