Tax Refund Time: Indulge or Save? Let’s talk about the POWER!

As tax season approaches, many of us find ourselves excited about the arrival of our tax refunds. It’s a chance to indulge in a little extra spending, perhaps on a vacation or a new gadget – But what if instead of splurging, we chose the power to invest in our future?

According to the IRS, “approximately 75 percent of all people filing returns receive a tax refund, and the percentage of people with lower incomes receiving a refund is more than 80 percent”. Yet, according to a survey by Bankrate, 26 percent of all Americans have no emergency savings whatsoever. Looking at your refund as money already set aside in a “savings account” will help you transfer the money to another “savings or investment” fund.

Let’s explore why saving your tax refund can be a smart financial move that sets you up for long-term success.


The Power of Tax-Time Savings

Saving at tax time offers a unique opportunity to kickstart your savings journey. With a lump sum of money coming your way, it’s the perfect moment to consciously decide to prioritize your financial well-being. Whether you’re saving for short-term goals like a vacation or long-term objectives like retirement, every dollar saved at tax time can significantly impact your future; Therefore giving you more power and control over your future.

Building Financial Security

By allocating your tax refund to savings, you’re taking a proactive step towards achieving your financial goals and safeguarding yourself against unexpected expenses or economic downturns. Whether you’re starting an emergency fund, saving for a down payment on a home, or preparing for retirement, every dollar saved contributes to your overall financial well-being.

Creating a Buffer

Life is unpredictable, and unexpected expenses can arise when you least expect them. By saving your tax refund, you create a financial buffer that can help cushion the impact of emergencies such as car repairs, medical bills, or job loss. A readily accessible savings fund can lower stress and provide peace of mind, knowing you have resources to fall back on in times of need without resorting to high-interest loans or credit cards.

Seizing Opportunities

Saving your tax refund also opens up opportunities for future investments or major purchases. Whether pursuing higher education, starting a business, or investing in the stock market, having a pool of savings gives you the flexibility to capitalize on opportunities as they arise. Exercising a little restraint and delaying immediate gratification now can position you to make more strategic and impactful financial decisions in the long run.

Compound Interest

You may have heard of compound interest but honestly have no idea what it entails. Compound interest is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods. “Interest on interest,” or the power of compound interest, will make a sum grow faster than simple interest, which is calculated only on the principal amount.

There are several compound interest calculators online, but if you want to roughly calculate compound interest on a savings figure without a calculator, you can use the rule of 72. The rule of 72 helps you estimate the number of years it will take to double your money. The method is simple: divide 72 by your annual interest rate.

For example, let’s say you’re earning 3% per annum. Divide 72 by 3, which will give you 24. So, your initial investment will have doubled in about 24 years. If you’re receiving 6%, then your money will double in about 12 years. This is all using the power of compound interest.

The power of compound interest in terms of savings cannot be overstated. Investing your tax refund in interest-bearing accounts or assets allows your money to grow over time through the magic of compounding. Even the smallest contributions can snowball into substantial sums over the years. 


Tips for Saving Your Tax Refund

So, how can you make the most of your tax refund and prioritize savings? Here are some practical tips to consider:

  • Set Clear Goals: Identify your financial objectives and allocate your tax refund accordingly. Whether it’s paying off debt, saving for a specific purchase, or investing for the future, having a clear plan ensures that your money is working toward your priorities.
  • Automate Your Savings: Take advantage of AODFCU’s automation tools to transfer your tax refund directly into a designated savings account. This eliminates the temptation to spend impulsively and reinforces disciplined saving habits.
  • Consider Tax-Advantaged Accounts: Explore options such as Individual Retirement Accounts (IRAs) or Health Savings Accounts (HSAs) that offer tax benefits and potential investment opportunities. Maximize the advantages of these accounts by contributing your tax refund towards future financial security.
  • Monitor Your Progress: Review your savings goals regularly and track your progress over time.

Celebrating Milestones

Building emergency savings is a journey, and it’s essential to celebrate milestones along the way. Whether it’s reaching a specific savings target or consistently meeting your savings goals each month, take the time to acknowledge your progress and pat yourself on the back for your financial discipline and commitment to building a brighter future.


Getting Ready to File
Planning can help you to take advantage of tax time to make the most of your tax refund. Take some simple steps to make a savings plan. If you are eligible, save on filing fees by using free or low-cost filing options. 

Depending on your situation, several free or low-cost options may exist for filing your tax return. It is important to choose a reputable tax preparer to file an accurate return. Any mistakes could result in additional costs and complications in the future.

You can generally get free tax preparation assistance from IRS-certified volunteers at a Volunteer Income Tax Assistance (VITA)  or a Tax Counseling for the Elderly (TCE) location if:

  • Your income is $54,000 or less 
  • You are 60 years old or older
  • You have a disability or speak limited English
The IRS locator tool will help you find a VITA site near you. 


While it may be tempting to splurge on immediate gratification when you receive your tax refund, exercising restraint and prioritizing savings can yield far greater rewards in the long term. Saving at tax time isn’t just about stashing away a few extra dollars—it’s about making a conscious choice to invest in your future and build a brighter financial tomorrow. Whether you’re saving for emergencies, opportunities, or long-term goals, every dollar you save at tax time can significantly impact your financial well-being. So, this tax season, consider the power of saving and take a step towards building the future you deserve. AODFCU has options available to help save or invest your tax refund. Reach out to us with any questions or to set up an appointment. 

For more information, visit MyCreditUnion.gov

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