Metro Credit Union

Another tax season has come and gone, and if you’re getting a refund, your deposit or check should be arriving soon. 

So, what are your plans for those funds?

No matter how big or small your refund may be, saving it and growing it is always an option and one of the best things you can do. There are plenty of savings options, and you can’t go wrong with any of them, but some accounts or strategies might get you further ahead on your financial goals. 

Rainy Day or Emergency Savings Fund

If you don’t have an emergency fund, a tax refund is a great way to start one. 

An emergency fund, otherwise referred to as a “rainy day” fund, are for those unexpected situations like car or home repairs, surprise medical bills, changes in childcare, unemployment, and much more.

Emergency savings should have at least three to six months of living expenses ready to go when you need it to cover:

• rent or mortgage payments
• cell phone bills
• utilities
• debt payments like cars or credit cards
• school expenses or payments
• groceries and household items
• secondary costs like subscriptions, gym memberships, and other services 

Building an emergency account is simple — set a savings goal, automate savings with direct deposit, and contribute to it consistently. The best place for your emergency funds is a savings account or a high yield savings account. 

A Membership Savings account is a great way to start building your savings, and a High Yield Savings is a smart move when your emergency fund reaches over $10,000.

Paying Down Debt

Paying down debt is saving. It certainly doesn’t feel that way, but the more you can pay down high-interest debts, the less money you’re sending out the door over time. 

A larger refund can really help you cut into high-interest debt payments. High-interest debts include consumer debt like credit cards or personal loans, lines of credit, and vehicle loans. 

Smaller refunds can still make an impact too. If you’re not spending on the credit card or personal line of credit, any additional payment, on top of your regular payments, is going to help the principal go down and the interest accrued will decrease over time. 

Having trouble picking which debt to put the money toward? It depends on your goals and the kind of debt. 

Paying down the highest-interest debt you have is never a bad option. High-interest debt means you’re paying more for borrowed money, and the sooner that is paid off, the sooner you’ll start saving those extra dollars. But, again, if it’s a credit card or personal line of credit, make sure you don’t continue spending on it if the goal is to lower the principal.

If you have an opportunity to pay a debt off entirely — event if it’s not high-interest — take advantage of it. Getting rid of debt is never a bad thing, so if you can wipe one off the board, that is a good strategy too.

Other Savings Accounts

Your emergency account is fully funded and you’re ready for whatever life throws at you, but you still want to build on savings goals with that tax refund. So what type of accounts should you look at?

First, determine your savings goals. 

Are you looking to save more strategically for big family moments like holidays or vacations? Consider a club account! 

A Vacation or Christmas Club account is a specific savings account that you can contribute to on a schedule that works for you, locking up the funds until two months before you’ll need them. A tax refund is perfect way to kickstart that goal. 

Hoping to work forever? Probably not, so you might be looking at retirement accounts. 

An IRA is a great option to help you save for your future. Whether you choose a Traditional or Roth IRA, there’s a plan that will fit your goals and needs to help you start building on that tax refund. 

If you don’t know where to begin with a retirement account, consulting with Metro Investment Services is a great place to start — and it’s free! Our financial advisors have the knowledge and expertise to guide you toward the account and personalized plan that works best for you. 

Ready to Maximize Your Tax Refund? 

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