If you're receiving a tax refund this year, you might wonder what to do with it. A large purchase? Vacation? Splurging could be tempting, but there are other ways you can benefit your finances.
While there's much uncertainty surrounding the economy, thanks in large part to whether some tariffs will be implemented or not, one group that benefits from that uncertainty is savers.
At their March meeting, the Federal Reserve declined to cut interest rates. This gives savers a longer runway to earn a healthy rate of return. So, if Uncle Sam owes you money this year, one place to consider parking it is a high-yield savings account.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Grow your tax refund with a high-yield savings account
A high-yield savings account allows you to store your money away for as long as you would like. Unlike certificate of deposits which have terms attached, a high-yield savings account gives you the flexibility to grow your money with quick access to it anytime you need it.
When searching for the best options, online banks are a great first place to turn to. They'll offer much higher rates than brick-and-mortar location because they don't have the overhead expenses associated with physical locations.
Using this tool from Bankrate, you can see how good the rates currently are:
Things to consider with a high-yield savings account
These accounts come with variable interest rates. It means if the Federal Reserve decides to cut interest rates in the future, and there might be two rate cuts this year, savings accounts can dip.
The good news is even if that happens, you'll have the ability to withdrawal your money and find another savings or investment vehicle that works better for your goals.
The other thing to watch out for is fees. Some banks require you maintain a specific balance. Failure to do so could result in monthly fees which will likely offset any interest earnings.
10 best high-yield savings accounts to consider
Once you receive your refund, here are 10 savings accounts that offer rates above 4%:
Account | APY | Min. opening deposit |
|---|---|---|
4.40% | $0 | |
4.40% | $500 | |
4.35% | $0 | |
4.35% | $100 | |
4.35% | $5,000 | |
4.30% | $500 | |
4.25% | $100 | |
4.25% | $250 | |
4.25% | $2,500 | |
4.20% | $0 |
To open a high-yield savings account, you'll need to visit a local branch or fill out an application with an online bank. As part of opening the account, supply basic information, such as your address, Social Security number and a government-issued ID. This can be a driver's license, state ID, passport or other approved documents from your bank.
If you open a high-yield savings account online, you can do a transfer from your checking account to your new savings account to fund it securely. The process is quick and only takes a few business days, in most cases, to complete.
How much can I earn?
It depends on how much you deposit and the interest rate your savings account offers.
For example, the IRS reported the average tax refund this year is $2,252. If you put $2,000 of your tax refund into a high-yield savings account with a 4.30% APY — like the one currently offered by Western Alliance Bank— you would earn approximately $87.89 in interest over the course of a year. This assumes the rate remains steady and you don’t add or withdraw any money during that time.
That’s nearly $90 in passive income just for letting your refund sit in the right account. Keep in mind that HYSA rates can fluctuate, and the way interest is compounded — daily, monthly, or quarterly — can also slightly impact your total earnings.
The bottom line
If you're receiving a tax refund this year, one smart place to put it is in a high-yield savings account. With it, you'll earn a rate that outpaces inflation, while also giving you quick access to your money anytime you need it.
Whether you have short-term or long-term savings goals, it's among the easier ways to reach them. And stay tuned to Fed news, as future rate cuts could influence earnings.
Related content
-
S&P 500 Hits New Highs as Rally Resumes: Stock Market TodayTech stocks were the biggest gainers on Wall Street today, with Nvidia and Dell making notable moves.
-
The Shutdown Standoff Is Heading for Its Next Big TestA key mid-October deadline could intensify the shutdown fight in Washington, and the fallout could soon hit workers and your wallet.
-
The Shutdown Standoff Is Heading for Its Next Big Test
A key mid-October deadline could intensify the shutdown fight in Washington, and the fallout could soon hit workers and your wallet.
-
I Want to Retire, but I Have to Keep Working so My Adult Kids Have InsuranceIt's a tricky period when your adult child is under 26 but needs health insurance. We ask financial experts for advice.
-
Don't Let Your Equity Compensation Trip You Up: A Financial Expert's GuideStock options, RSUs and other executive perks can come with some serious strings attached. To avoid a nasty tax surprise, you need a plan.
-
I Work From Home, and These Are the Best Home Office Upgrades From October Prime Day and Anti-Prime Day SalesSpruce up your office for less with these sales. You could also qualify for tax credits with some upgrades.
-
6 Steps to Protect Your Retirement SavingsDon't let a shaky economy and volatile market derail your retirement. These moves will help ensure your money lasts as long as you do.
-
Should You Replace Your Financial Adviser with AI?Financial Help Many people already ask AI for financial advice. But is it good enough to replace a human financial adviser?
-
Savvy Savings Moves to Make Now – Or You Could Lose ThousandsDespite a rate cut and inflation, these moves can still help you reach your savings goals quickly.
-
Escaping the New Golden Handcuffs: A Financial Expert Has a Plan for Today's ExecutivesFeeling stuck in your job? It could be your complicated compensation package, but it also could be where you live, your family or even how you view yourself.
