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.
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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%:
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.
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