How to Invest Your Tax Return this Year

With Tax Day just around the corner, many people are anxiously awaiting the arrival of their tax returns. Whether you’re getting a lot back or just a little, tax refunds give you the opportunity to make a smart financial move. Rather than spending your tax return on an impulse buy, consider investing your refund for long-term financial growth.

Keep reading to learn about the benefits of investing your tax return, types of investment bank accounts, and how to maximize a tax refund.

Top Reasons to Invest a Tax Refund

The temptation to spend your tax return may be great, but there are greater benefits in saving and investing it:

• Grow Your Money — Investing gives your tax refund the potential to earn interest or yields over time, increasing its value beyond the initial deposit.
• Maximize Compound Interest — Investing sooner will give your money more time to compound, which ultimately raises its growth potential.
• Reach Financial Goals— By investing your IRS refund, you are taking another step towards achieving financial milestones. This could mean retiring early, owning a home, paying for education, or building long-term financial security.
• Offset Inflation — Your tax refund investment can help your money maintain—or even increase—its purchasing power over time. Therefore, your money will better withstand the gradual impact of rising prices.
• Emergency Preparedness — Placing your refund in a low-risk investment can help strengthen your safety net for surprise expenses.
• Future Income Support — Smart investments today can help provide additional income and flexibility later in life.

Best Ways to Invest Your Tax Return

Turning your tax return into long-term growth starts with choosing the right account. Here are a few investment options for maximizing your tax refund:

Investment Option #1: CD & CD IRA Accounts

While there are many different types of investment accounts, those who are looking to invest their tax refund with less risk might be interested in a certificate of deposit (CD) or certificate of deposit individual retirement account (CD IRA).

Certificates of deposit provide a low-risk investment option offered by banks and credit unions. When you invest in a CD account, you agree to deposit a certain amount of money for a fixed period, known as the term or maturity period. In return, the bank offers a higher interest rate compared to standard savings accounts.

For those looking to save for retirement while enjoying certificate of deposit benefits, CD IRAs offer a tax-advantaged investment vehicle. Similar to traditional IRAs, CD IRAs allow you to invest in CDs within a retirement account framework.

Investment Option #2: High-Interest Checking Accounts

An interest checking account, also called an "investment checking account," is a type of bank account that combines the features of a traditional checking account with the ability to earn interest on the deposited funds. Your balance remains fully accessible for daily banking needs like debit card purchases, ATM withdrawals, bill payments, and money transfers, BUT you still receive high yields to grow your balance.

Investment Option #3: Money Market Accounts & Money Market IRA Accounts

Money market accounts are a hybrid between the first two investment options. They offer a balance between the growth potential from CDs and accessibility of interest checking accounts. That translates to competitive returns and convenient account management. 

For retirement savings, a money market IRA provides the same stability and liquidity benefits, but within a tax-advantaged retirement account. It's a smart choice for conservative investors who want dependable returns while protecting their retirement savings from market swings.

Grow Your Tax Return with Academy Bank

Academy Bank offers a full suite of secure and flexible accounts to help you make the most of your tax refund.

• Certificate of Deposit¹ — Lock in CD rates today for guaranteed growth with terms ranging from 1 month to 5 years.
• CD IRA² — Same guaranteed CD interest rates with tax-deferred growth, perfect for retirement savers wanting predictable income without stock market exposure.
• Premier Money Market Account³ — Earn competitive money market rates and returns, all paired with convenient flexibility.
  
• Money Market IRA⁴ — Balance growth and stability in a tax-deferred retirement account.
• Elite Investment Checking Account⁵ — Tiered interest rates that rewards higher balances, while enjoying Early Pay,⁶ no-fee money orders, complimentary standard checks, and 40,000+ free ATMs.

Plus, all accounts feature: FDIC insurance, digital banking, and referral rewards when your friends and family join Academy Bank. Invest your tax refund today!

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FAQ About Investment Accounts & Tax Refunds

Can you invest with a checking account?

Yes, in some ways. While standard checking accounts aren't designated for traditional investing like buying stocks or mutual funds, certain types of checking accounts can still help your money grow.

High-interest or "investment" checking accounts let your balance grow by earning interest or dividends over time. They offer an easy way to make your money more productive.

What is the difference between a certificate of deposit IRA and money market IRA account?

Both options are tax-advantaged retirement accounts, but they differ in their earning structure and fund accessibility.

A certificate of deposit IRA (CD IRA) offers fixed terms and predictable returns, making it well-suited for retirement savers who care about stability and certainty. Meanwhile, a money market IRA provides variable returns and greater flexibility. This may appeal to people who want to keep their retirement funds readily available.

Do you have to pay taxes on the interest earned from investing a tax refund?

Usually yes, but it depends on where your refund is invested. Earnings from bank products like CDs, money market accounts, and high-interest investment checking accounts are generally reported as income for the year they are earned.

However, if your tax refund is invested in a tax-advantaged retirement account like a CD IRA or money market IRA, the interest is tax-deferred (Traditional IRA) or potentially tax-free (Roth IRA) until qualified withdrawal.

What types of accounts accept direct deposit for tax refunds?

Most bank accounts accept IRS tax refund direct deposits. This includes checking accounts, money market accounts, traditional savings accounts, and prepaid debit cards. While you can't deposit directly into a certificate of deposit, you can easily open and fund a CD once your refund arrives.

IRA accounts are a special case. You can direct your refund to an IRA account, but it's technically processed as a "contribution" rather than a standard "direct deposit." 

Invest Your Tax Return, Invest in Your Future

While putting your tax refund in an account to grow—rather than spending it—may not seem like much fun, the truth is that it can (literally) pay dividends for years in the future. Whether you choose to invest in a CD, CD IRA, a money market account, money market IRA, or explore the possibilities of an investment checking account, the key is to align your investment strategy with your financial goals, risk tolerance, and time horizon.

Invest Tax Refund Today