4 Smart Ways to Use Your Bonus or Tax Refund
Annual bonuses and tax refunds offer you the chance to pay off debt, purchase a big ticket item, or save for a rainy day. But which path best fits your financial goals?
According to the IRS, the average 2018 income tax return in the United States was $2,727. That's definitely not chump change. In addition, profit sharing bonuses collected by workers can also be substantial. If you received a bonus, it can be exciting, but you should carefully look at your options before parting with it too quickly.
Here's a list of options to consider after you collect that bonus or tax refund.
1. Set up or strengthen your emergency fund
We don't like to think much about it, but the unexpected can happen to us at any time. Having an emergency fund to deal with the expenses that may result from the unexpected is a financial must. Most financial experts agree that having an emergency fund of three to six months of living expenses is ideal. If that's not realistic, consider your tax refund or company bonus as a good place to start saving. Set the cash aside in a separate account from your existing savings account, or pad your savings with the extra boost. Another option would be to open an account with a higher rate of return, such as a money market account or CD – more on those below.
2. Pay off debt
Have a high-interest credit card or loan with a steep monthly minimum payment? Your bonus or tax refund can give you some breathing room. Let's say you make a large principal payment on an auto loan, student loan, or credit card. When you do this, the interest you owe on that balance also goes down, and the amount of time you need to pay off that loan might decrease. It might also lower your monthly minimum payment. Even just using your refund to cover an extra $1,000 in debt can save you a significant amount in finance charges.
3. Open a Money Market Account
Encouraging smart savings strategies is something we love to do for our members at BECU, and a company bonus or tax refund can be a great way for you to get started.
BECU Member Advantage Money Market accounts and higher balance money market accounts earn a higher rate of return than a standard savings account. With a money market account, you can enjoy:
- No minimum balance requirements
- No monthly maintenance fees
- Peace of mind with an NCUA insured account
For more information or to check out our current rates, visit our Money Market page.
4. Open a Certificate of Deposit (CDs)
Need a little more structure in your approach to saving? CDs have specific fixed terms and fixed interest rates. You can also choose your own term and maturity date on the amount you want to invest. Be sure to check out our new, competitive rates.