Open a high-yield savings account.
If you’re one of the estimated 28 percent of Americans with no emergency savings, use your refund to change that. Avoid the temptation to tap your fund for non-emergencies by going to a bank you don’t currently use. (That extra step can keep you from “borrowing” against it on impulse, says Cristina Briboneria, CFP and vice president of Oxygen Financial.) To max out your earnings, go for a no-fee, high-yield savings account such as Capital One 360, Barclays, Ally, or American Express. Yes, interest rates are low, topping out at around 1 percent these days. But if you put a $1,000 refund into a no-fee account earning 1 percent interest, and put an additional $10 in your account each month, you’d have nearly $1,400 in 3 years.
Ditch high-interest debt
Use your refund to pay down -- or, even better, to pay off -- a credit card balance and you could save hundreds of dollars in interest (depending on your balance and interest rate). The average interest rate on new credit cards is now nearly 15 percent. If you had a $1,000 balance at that rate, and were making a minimum monthly payment of 1 percent plus interest, it would take you 106 months to get rid of your debt, and you’d pay nearly $730 in interest! (You can use Bankrate.com’s calculator to work out your own calculations.) Use your refund to pay off your balance now, and you’ve essentially saved yourself hundreds of additional dollars in interest.
Open or max out your IRA
The maximum contribution for 2013 is $5,500, or $6,500 if you’re 50 or older. The IRS allows you to contribute right up until next April 15, and the contributions you make may entitle you to a tax deduction when you file next year -- bonus! Even better: If you use your refund to help max out an IRA this year, that $5,500 could be worth nearly $10,000 over the next decade, assuming an average 6 percent annual return -- even if you don’t contribute another dime to it! (Though we know you will, right?)
Note: This slide has been updated to correct an earlier error. The contribution limit is $6,500 for those 50 or older, not 55.
Invest in Your Career
If your debt and retirement accounts are under control, and you have a nice savings cushion, now’s your chance to splurge—on your career. Harboring dreams of a major career change? Ready to take the entrepreneurial leap? Use your refund to take online courses or classes that teach skills you can use to change career paths (programming, anyone?), or as seed money for a new business.
Pay it forward
While you won’t make money, you can make a difference by donating all or part of your refund to a cause you believe in. Make a donation to a 501(c)(3) nonprofit, and you can deduct it from next year’s taxes, too. Before you give, check out the organization’s track record on Charity Navigator, which evaluates charities. You can also use your cash to help a cause you love on the funding platforms Kickstarter or Indiegogo—though those gifts aren’t tax-deductible.