The Best Place for Your 2024 Tax Refund: Savings, CDs, & Investments

If you're expecting a tax refund, have you made plans for it? Now could be the time to get ahead with a savings, CD, or investment account.
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A young couple meets with their tax advisor and learns about their tax refund

Each spring, households across the country find themselves with hundreds or even thousands of extra dollars, thanks to state and federal tax refunds.

What you do with that money depends on your current financial situation. You might need it to catch up on bills or pay down debt, or you may have the money earmarked for a major expense you have planned.

Still, not everyone needs to use their tax refund for an immediate purpose. In that case, you should think carefully about where to deposit your cash.

Consider one of the following options to ensure your money goes to work for you.

Certificates of Deposit

Certificates of deposit (CDs) can be a great choice for money you won’t need immediately. They typically earn a higher interest rate than savings accounts, but the trade-off is you need to commit to keeping your money invested for a specific period of time.

Common CD terms range from three months to five years. Typically, the longer the term, the higher the interest you earn. Once the term is up, you can withdraw the money and interest or roll it over into a new CD.

If you withdraw money before the term is up, you generally need to pay a penalty, such as losing three months’ worth of interest.

Some institutions have minimum deposit requirements. For instance, you may need at least $500-$1,000 to open a CD at some banks.

Certificates of deposit aren’t for everyone, but they make sense if you want to maximize your interest and don’t anticipate needing the money until months or years in the future.

Certificates of Deposit: Key Takeaways

  • Can pay higher interest than savings accounts.
  • Money must be deposited for a specific period of time, and a penalty is accessed for early withdrawals.
  • Some require a large initial deposit of $500, $1,000, or more.
  • Best for cash you won’t need anytime soon, such as savings for a future purchase.

If you are interested in a certificate of deposit, here are some of our top picks:

Marcus by Goldman Sachs

If you are looking for a high rate, Marcus by Goldman Sachs typically has some of the best interest rates available.

What’s more, it offers a no-penalty CD that will allow you to withdraw money early without paying a penalty.

This option is available anytime after the account has been open for seven days.

Read our Marcus by Goldman Sachs review

CIT

CIT, the online division of First Citizens Bank, is another good choice for a certificate of deposit.

Like Marcus by Goldman Sachs, CIT generally offers some of the highest interest rates available, and it too has a no-penalty CD. However, you’ll need at least $1,000 to open one.

Read our CIT review.

Savings Accounts

A savings account is the most accessible place to store your tax refund.

Most institutions have no or very low minimum deposit requirements, so virtually anyone can open an account.

However, if you open an account at your local bank or credit union, there is a chance your money will earn virtually nothing in interest.

Instead of opening an account with below-average interest, look for a high-yield savings account. These accounts are most commonly offered by online banks but can be found locally as well.

With a savings account, you can usually withdraw money whenever you want, although some institutions have a limit of six withdrawals per month.

This option is ideal if you are trying to build an emergency fund.

A high-yield savings account provides some interest to help your money grow, but your cash is always accessible. That means that you easily tap into your balance whenever needed.

Savings Accounts: Key Takeaways

  • Interest rates can vary, with the highest rates often paid by high-yield savings accounts offered by online banks.
  • Money can be withdrawn at any time without penalty.
  • Most have little to no minimum deposit or balance requirements.
  • Best for emergency savings or cash that you want to be able to access at any time.

Here are some good choices for a savings account:

Bread™ Savings

Formerly known as Comenity Bank, Bread™ Savings offers interest rates on savings accounts that can rival some certificates of deposit.

With no monthly fees, this can be an easy way to maximize your tax refund, and you only need $100 to open an account.

Read our Bread Savings review.

Western Alliance Bank

Western Alliance Bank also offers a high-yield savings account that rivals that found on certificates of deposit.

You only need $1 to open an account with this institution, which is best known as a commercial bank. To access its personal savings account, you’ll use the Raisin platform.

Barclays

While Barclays is a relatively new name in the U.S. — it established its presence here in 2001 — it was founded more than 300 years ago in London.

Its online savings account offers competitive rates and has no minimum deposit to open an account. It also does not charge any monthly maintenance fees.

Read our Barclays review.

Investment Accounts

If you really want to see your money grow, you should consider investing it. But before doing so, you need to understand the risk.

Unlike CDs and savings accounts in which your cash can’t lose value, investments come with financial risk. They could grow significantly, or if the stock market tumbles, they could decline in value. This is why it is smart to consult with an experienced and trusted financial planner when investing.

However, you don’t need a financial planner to invest money, and many online platforms make it easy for individuals to open brokerage accounts to buy and sell stocks, mutual funds, and other securities. Many also provide educational tools that can help you understand your account and fund options.

This option is ideal if you are motivated to see your money grow and won’t need it for some time. When you invest money, the value of your account can change on a daily basis, even dropping significantly during a recession. Still, over time, the stock market as a whole has always gained value.

Investment Accounts: Key Takeaways

  • Investing money can produce significantly higher returns than saving it in a bank account.
  • There is risk involved in investing money, and it is possible to lose some or even all of your cash, particularly if it is not properly diversified.
  • Fees and minimum deposit requirements can vary significantly among investment brokerages.
  • Best for money that you can leave invested for a long period to ride out any economic downturn.

Before investing your tax refund, read our guide on the best ways to invest money so you fully understand your options. Then, check out our choices for investment platforms below.

Vanguard

Vanguard has long been a leader in low-cost investment options. The company has a variety of no-commission funds available, and during the past 10 years, the majority of Vanguard funds have outperformed their peers.

While anyone can open a Vanguard account, some funds may require $1,000 or more for you to invest. And if you want personal advisory services from Vanguard, you’ll need at least a $50,000 account balance.

Read our Vanguard review.

Betterment

Betterment is part of a relatively new breed of online brokerages known as robo-advisors. They make investing inexpensive and accessible to almost everyone, regardless of how much money you have.

Betterment uses automated technology and tools to analyze your investment goals and recommend a suitable portfolio. There is an annual fee of 0.25% of your portfolio value for their basic service.

Read our Betterment review.

Facet Wealth

For affordable, professional advice on how to invest your tax refund, take a closer look at Facet Wealth.

This online platform connects investors to certified financial planners who charge a flat fee rather than earning a commission on sales.

This approach ensures you are getting unbiased advice and not simply funneled to funds that earn an advisor the largest paycheck.

There is no minimum balance required, and the fee you pay is based on the level of service you need.

Read our Facet Wealth review.

Stash Invest

Stash Invest is another top choice for low commissions, and we also like this robo-advisor for its intuitive desktop and mobile experience.

Its simplified platform makes it easy for new investors to get started. What’s more, it only costs $3 a month for a Stash Growth plan that comes with a personal portfolio and automated investment advice. You can get started with as little as $5.

Read our Stash Invest review.

REITs

Real estate has been a tried-and-true investment for countless people, but not everyone wants to be a landlord. In that case, REITs offer a hassle-free alternative.

Standing for a real estate investment trust, a REIT is a way to invest in real estate without actually owning property directly. You can purchase shares in a REIT, which is a fund that must use at least 75% of its assets to purchase real estate.

Like other investments, there can be risk involved in buying shares of a REIT, and there is no guarantee that they will make money. However, like the stock market, real estate has traditionally appreciated or gained value over time.

Using your tax return for shares in a REIT can be a good option if you can leave the money invested for a longer period and don’t mind the risk that comes with an investment.

REITs: Key Takeaways

  • REITs – which are real estate investment trusts — use shareholder money to purchase real estate and share profits with investors.
  • As with any investment, there is risk involved and no guarantee that money will grow.
  • Some REIT platforms require sizable minimum deposits.
  • Best for those who want to invest in real estate without the hassle of owning individual properties.

Our Guide to REITs is a must-read for anyone considering this option. Once you understand how these funds work, the following providers can help you get started.

CrowdStreet

CrowdStreet has made a name for itself as one of the top online platforms for real estate investing. The company focuses on commercial real estate, and in addition to REITs, it offers the opportunity to invest in specific properties. However, CrowdStreet isn’t for everyone. You’ll need to be an accredited investor, which means you have a high income or net worth, and there is a $25,000 minimum investment requirement.

Read our CrowdStreet review.

RealtyMogul

RealtyMogul offers investment options for both accredited and non-accredited investors. If you don’t qualify as an accredited investor, you can purchase shares in the platform’s REITs. It has a REIT designed to generate income and another created to take advantage of growth in the apartment sector. You will need at least $5,000 to start investing at RealtyMogul.

Read our RealtyMogul review.

Other Ways to Use Your Refund

Of course, saving or investing your tax refund isn’t your only option. In fact, even if you are opening a savings account for your money, it’s smart to have a goal for that cash.

Here are some ideas for how to use your refund, either now or in the future.

Pay Off Debt

Paying off debt, particularly high-interest credit cards, is always a smart money move. It may not feel like the most enjoyable way to spend a tax refund, but it should free up more money in the long run for you to spend on the things you want.

Build an Emergency Fund

Ideally, you’ll have enough money in a savings account to cover three to six months’ worth of living expenses. If you don’t already have that money set aside, use your tax refund to start an emergency fund today.

Boost Your Retirement Savings

If you haven’t been able to contribute much to your retirement account this year, use your tax refund to boost the balance.

If you aren’t already saving for your golden years, you can open an IRA at many of the brokerage accounts listed above.

Pay Down Your Mortgage

Traditionally, a mortgage has been seen as “good debt,” particularly since you can deduct the interest on your itemized tax return.

Nowadays, few people itemize because the standard tax deduction is so large, so it might make more financial sense to start paying down your home loan.

Improve Your Home

Whether you need to make repairs or want to improve the livability of your home, improvements to your house can be both a rewarding and a smart way to spend a tax refund.

Consider options such as energy-efficient upgrades that may come with a tax credit you can apply to next year’s tax return.

Buy Something Fun

Perhaps you have your financial house in order and are already debt free, have a fully funded emergency fund, and are putting money aside for retirement.

In that case, go ahead and splurge with your tax refund and spend it on something fun such as a vacation or an item you’ve always wanted.

Bottom Line

There is no right or wrong way to spend your tax refund. However, saving and investing are two smart options that can help your refund grow into a larger amount of cash.

Just be sure to look for accounts that have minimal fees and a high interest rate or a solid history of investment returns

Frequently Asked Questions (FAQs)

What is the difference between saving and investing?

With savings, there is little chance of losing money. Most banks and credit unions participate in the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA), which insure up to $250,000 per depositor. That means that even if the institution goes out of business, you won’t lose your money.
When you invest money, rather than giving it to a financial institution for safekeeping, you are often buying a share of one or more companies. If the company makes money, then you make money. If they lose money or go out of business, the value of your shares will decline. With investments, it is possible to earn significantly more than what you’d get from saving money, but there are no guarantees and no safety net.

What is the smartest thing to do with a tax refund?

The smartest thing to do with a tax refund is whatever will improve your financial situation the most in the long run. For some people, that means paying off high-interest debt, while others may find investing for retirement brings them closer to their financial goals.

Maryalene LaPonsie brings over a decade of experience in personal finance and banking, making her a trusted voice in the field. This Michigan-based writer’s insights are regularly featured in outlets like U.S. News & World Report, enhancing readers’ understanding of complex financial topics. Her comprehensive coverage extends to retirement planning, helping individuals navigate their financial journeys. Maryalene’s unique perspective is enriched by her 13-year tenure in the Michigan Legislature, where she honed her analytical skills, making her a discerning commentator on banking trends and policies.
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