4 reasons to put your tax refund into a high-yield savings account
The deadline for filing your 2022 taxes is fast approaching. If you haven't filed your return yet, you have a little over a week to do so. If you've already filed and you're owed money, chances are you're eagerly awaiting your refund or have already received it.
It's easy to feel tempted to splurge when you receive a lump sum beyond your ordinary income. But the wisest financial decision is often to store away that money for the future, ideally somewhere it can earn interest.
Enter: high-yield savings accounts. High-yield savings accounts are a great place to stash funds for a variety of purposes. In this article, we break down why a high-yield savings account could be just the place for your tax refund.
If you're interested in opening a high-yield savings account, check out your rates here.
4 reasons to put your tax refund into a high-yield savings account
Consider depositing your tax refund in a high-yield savings account for the following reasons:
You'll earn more than with a regular savings account
High-yield savings got their name because they deliver — you guessed it — higher yields than regular savings accounts. How much higher? Currently, the average interest rate for regular savings accounts is around 0.23%. High-yield savings account rates, on the other hand, are around 3.5% to 4.5% (or higher). This makes these accounts a no-brainer if you're looking for somewhere to keep your cash.
And since savings account interest rates vary based on the federal funds rate, now is a great time to open a high-yield account if you don't already have one. High interest rates have lots of negative effects, but one positive is that they boost how much your savings can earn.
Explore current rates to see how much you could be earning with a high-yield savings account.
You can build an emergency fund
Experts recommend having at least three to six months' expenses in an emergency fund. This will cover your day-to-day living costs if you lose your job.
It can also pay for unexpected major expenses like a surprise home repair or medical bill, saving you from relying on credit like credit cards or personal loans, which cost you more than you initially borrowed thanks to interest charges.
Plus, because high-yield savings accounts are more liquid than savings products like CDs, you can tap into your funds as needed without penalty (as long as you adhere to any withdrawal limits).
You can save for a short-term goal
High-yield savings accounts are also a good way to put money aside for a short-term goal, such as a vacation, wedding or new car. You'll have more to put toward these goals thanks to interest earnings, plus keeping the funds you've earmarked in a different account from your checking account avoids the temptation to dip into them for other purposes.
Your money will grow risk-free
You could potentially earn big money by investing in the stock market, but it's risky. You could just as easily lose big money overnight. A high-yield savings account may not be as exciting as playing the market, but it's much safer.
If the federal funds rate decreases, your interest earnings will decrease, but you won't lose any of the initial money you deposited. And in the worst-case scenario, if your bank fails, your money is protected by FDIC insurance up to $250,000 per account per bank.
Start your search for a high-yield savings account by reviewing available rates here.
The bottom line
Receiving a sudden windfall like a tax refund can be exciting, and if you want to treat yourself a little, there's nothing stopping you. But even if you decide to splurge on a little something, consider putting the bulk of your refund into a high-yield savings account. Your money will earn more money, and you'll have something to rely on in the future, whether you need it in a pinch or plan to use it for a goal you're looking forward to.
As with any financial product, be sure to shop around to find the best rates.
for more features.