Use This 1-Year CD if You’ll Owe Taxes Next Year
We’re nearing the end of the regular tax season. With the tax deadline on April 15, you might have already filed your return. And if you haven’t yet, here are some of the best tax software programs to expedite the process.
While tax refunds are slightly higher this year, not everyone will qualify. If you usually owe taxes, there’s a workaround you can do to earmark money now, so it won’t be as much of a bummer when you go to file next year.
Here’s how a one-year CD can help.
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Save for future tax debt with a one-year CD
A one-year certificate of deposit allows you to earmark money now, so when you file next year, you’ll have cash on hand to pay your tax debt. They’re easy to set up and offer you an effortless way to gain a return, which is less money you’ll have to pay out-of-pocket.
What’s more, now is an excellent time to lock in a CD rate. While the Federal Reserve hasn’t cut rates yet this year, some traders bet the Fed will cut rates four times this year to bail out the economy based on fears that Trump’s tariffs will result in a recession.
If this happens, saving rates, including CDs, will likely dip. So locking them in now ensures you earn a healthy rate of return, regardless of what the Fed decides.
Using this tool from Bankrate can help you find a good fit:
Best 1-Year CD to pay tax debt
Along with the Bankrate tool, we chose a one-year CD that can help you maximize savings while earning a healthy rate of return:
Account | APY | Min Deposit |
|---|---|---|
Bask Bank | 4.40% | $1,000 |
Bask Bank’s one-year CD allows you to earn one of the highest rates available for one-year CDs. And with a $1,000 minimum deposit, it’s a low balance requirement for many tax filers who owe.
Considerations when using a CD
A CD works best when you have enough cash on hand to devote a portion of it to a savings vehicle and forget about it.
Banks and credit unions will allow you to break open a CD if a financial emergency arises, but will charge you to end the CD before its maturity date. The fee can offset any interest earned.
If you’re concerned about having access to your cash, but want to try a CD, a no-penalty CD is a wise alternative to consider. You can earn a high rate of return and have access to your cash in the future, should you need it.
Another thing to keep in mind is once you open a CD, you won’t be able to add any more money to it. If you plan to save some money now for future tax debts, with regular deposits throughout the year until tax filing in 2026, a money market account or a high-yield savings account is a smarter alternative.
(Image credit: Getty Images)
The bottom line
If you owe taxes annually, set aside some money now so you’re ready to go at this time next year. A one-year CD is a perfect savings vehicle for this approach: You’ll earn a rate outpacing inflation and your money will be available when you file next year.
Our top choice for a one-year CD earns you a healthy rate of return, which means a little less money from your pocket when you pay. Just keep in mind that CDs are inflexible savings vehicles and work best when you can park the money and forget about it.
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