When you complete your tax return, one of the things you most look forward to is getting a tax refund. You should use this money to shore up your finances. There are a few simple ways to invest that refund, depending on your goals.
1. Invest in a High-Yield Savings Account
If you want to set aside money for an emergency such as a car repair or a veterinary bill, you need to place that money in an insured bank account. You won’t lose any of your money and you will even earn some based on the interest rate you get. Money in a bank is readily accessible so you can withdraw it at any time.
2. Invest in CDs to Save for Large Expenses
If your financial goals include purchasing a house or paying for a vacation in Europe, then you want to invest your money in a low-risk certificate of deposit (CD) for a specific period of time. The time frame can range from six months to five years or more. During this time your money earns a fixed rate of interest. You don’t have access to the money without incurring fees and penalties for early withdrawal. You can open a CD at a bank or a credit union. Find out more about CDs.
3. Invest in an IRA for Retirement
An individual retirement account (IRA) is an effective way to save money for your retirement years. By contributing to an IRA, you get tax benefits, and you also won’t have to pay taxes on the amount you earn until after age 59 and one-half when you retire and start to receive distributions. There several different types of IRAs available. You can set up the most basic IRA at an online site like OptionsHouse.
4. Invest in Mutual Funds to Grow Your Money
If you think you are ready to start investing in the stock market, one of the easiest ways to start is with a mutual fund. There are numerous types of funds available and you can invest for as little as $500. Different mutual funds invest in small companies, precious metals, international stocks or other sectors. The best fund for a beginner is one that invests in a variety of stocks, bonds and money market instruments. It’s best to choose a no-load fund that has no upfront fees for investing. Online sites like E*Trade offer deals for investing in mutual funds with their site.
With any large windfall, it’s probably best to invest the money so you can accomplish your short term or long term financial goals. Investing a tax refund is a great way to help your financial future.