3 Key Ways to Grow Your Tax Return & Why Now is the Best Time to Take Advantage of Them All
Article submitted by Logan Amstutz, 3Rivers Shares Manager.
This article is intended for educational purposes. Please consult a trusted financial advisor to determine the best financial strategy for your situation.
Tax day is fast approaching! For many Americans, this is a time when they get a windfall of funds from overpaying on their taxes through the prior year. In 2024, the average tax refund for Americans was $3,138. Do you have plans for those funds should you receive a return this year?
For many, these funds may already be spoken for and would be best used to catch up on bills, pay down debt, or increase emergency savings. If you’re sitting comfortably in these areas and don’t already have a planned use for your return, then read on!
With increasing consumer costs and sustained high dividend rates, you may be looking to maximize your refund by growing it through a high-yield savings account. Rates on deposit accounts have stayed relatively high, even with some recent rate decreases by the Federal Reserve.
There are really three main vehicles to grow these funds:
- Stock Market Investments: The highest rate of return is likely to come from investing in the market. However, this option comes with less security as your principal is at risk (there’s a potential you could lose your initial investment) and the funds are not insured. In addition, you’ll want to be confident that you won’t need access to these funds for several years and consider making additional, monthly contributions for the most benefit. If you’d like to further explore whether this is the best option for you, our ClearFuture Financial Team, available through CUSO Financial Services, L.P.*, would be happy to discuss investment opportunities and answer your questions!
- Benefit: The highest rate of return of any of these options.
- Risk: Rates fluctuate more than any other option; you run the risk of losing your initial investment.
- Money Markets & High-Yield Savings: These are insured deposit accounts at credit unions and banks that typically pay higher-than-average market rates. They often have minimum balance requirements (if your balance falls below a certain threshold, you may be charged a fee or have your interest rate reduced) and are usually variable rate products (the interest rate will go up or down based on market performance and other factors). These have become significantly more popular in recent years. However, as the recent rate decreases have shown, the rate you get now may not be the rate you end the year with. | Learn more about our Money Market options here.
- Benefit: High yield; ability to access funds; can add additional funds; rates are variable and subject to market changes.
- Risk: Rates are variable and subject to market changes.
- Note: Since a variable rate product typically increases and decreases with the market, this feature is a benefit when rates are rising, but is a risk when rates are likely to decrease.
- Share Certificates & Certificates of Deposits (CDs): These are insured deposits at credit unions and banks that pay a higher-than-average rate but require that the funds remain on deposit until a certain date. Typically, these accounts include a penalty for accessing funds earlier than the contract maturity date. Due to being a contract account, the rate for the account is typically guaranteed for the agreed-upon term (there are certain exceptions, so it’s important to always review the details of your agreement). Certificates are a great way to ensure a guaranteed rate of return, if there are economic factors that result in further rate decreases. | Click to learn more about our Share Certificates.
- Benefit: Rates are typically guaranteed for the entire term.
- Risk: Funds are not accessible until the maturity date; rate remains at the contract rate if rates increase.
With these three options, it may be hard to determine which is right for you, your financial state, and your financial goals. You may be asking yourself which you should choose, and the answer will likely surprise you: you should choose as many as you are capable of doing! That’s right, with continued uncertainty around a potential recession and continued rising consumer costs, the best course of action is to hedge your funds so you can take advantage of whatever situation occurs, especially since the current rates of return for many of these products are similar.
Currently, many of these products have historically low entry points, so crafting a mix of savings is more attainable than in years past. Certificates that required a $5,000 or $10,000 investment in the past require as little as $500 now. High-yield savings accounts that used to only be an option for the wealthiest consumers are now available to most.
The increased accessibility of these savings options, coupled with the uncertainty of the market in 2025, makes it an ideal time to take action and leverage all of these options so you can be prepared for whatever the year has in store!
Of course, we always recommend checking in with a financial advisor to help you prioritize where to allocate your money based on your unique financial situation.
Let’s talk about your savings goals! We’re happy to review your financial picture and discuss your goals to help you come up with a customized savings plan, or answer any questions you may have about our savings options. Schedule an appointment at your nearest 3Rivers branch today!
* Investments through CFS:
Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members. ClearFuture Financial is a trade name for the investment & insurance products available at 3Rivers Federal Credit Union.
CUSO Financial Services, L.P. and its representatives do not provide tax or legal advice. For such guidance, please consult your tax or legal professional.