Are You Giving the Government an Interest-Free Loan? Managing Your Tax Refund Wisely

Tax season is here, and if you’re expecting a big refund, you might be feeling like you hit the jackpot! But before you start planning how to spend that extra cash, it’s important to ask: Is my tax refund too big? Let’s break down what it means when you receive a large refund, why it may not be in your best interest, and what steps you can take to better manage your money throughout the year.

What’s Wrong With a Big Tax Refund?

A tax refund isn’t free money—it’s actually money you overpaid in taxes throughout the year. When you receive a large refund, it means you’ve been giving the government an interest-free loan for months! While it might feel nice to get a lump sum, consider these downsides:

• You lose access to your own money – Instead of keeping extra cash in your paycheck each month, you let the government hold onto it. That money could should working for you instead.
• Missed savings and investment opportunities – If you have that extra money in your paycheck, you can contribute to a high-yield savings account, a retirement fund, or a money market account to earn interest. Learn More about Ways to Save
• Budgeting challenges – Spreading that money out over the year could help ease financial stress, cover unexpected expenses, or even prevent the need to rely on credit cards or loans.

How Do I Know If My Refund Is Too Large?

The IRS reports that the average tax refund for the 2024 filing year is $3,138. If your refund is close to or above this amount, it likely means you’re withholding too much from each paycheck.

That said, some people prefer a big refund because they struggle to save on their own. If receiving a lump sum once a year helps you make better financial choices, it may not be the worst option. However, it’s still worth exploring ways to put your money to work for you.

How to Lower Next Year’s Tax Refund

If you want to keep more of your money throughout the year, here’s what you can do:

✅ Adjust Your W-4 Form – If you’re a salaried worker, ask your employer for a new W-4 and update your withholding allowances. Claiming more allowances will decrease the amount withheld from each paycheck. If you’re unsure how to adjust it, consult a tax professional.

✅ Use Extra Money Wisely – Instead of overpaying taxes, consider automatically directing those extra funds into a Money Market Account, High-Yield Checking, or a CD to help your money grow securely while still having access to it.

✅ Contribute to Retirement – Adjusting your withholding means you’ll have more take-home pay. Use that money to contribute to an IRA, where it can grow tax-deferred*.

If you received a large refund this year, don’t let it sit idle! Consider depositing it into an AGCU Money Market Account or Highhttps://agcu.org/free-loyalty-plus-checking/-Yield Checking Account to maximize your savings. Your money should be working for you—not the government.

Make Your Money Work for You with High-Yield Accounts!

If you received a large tax refund this year, don’t just let it sit in your checking account—put it to work! Instead of giving the government an interest-free loan, consider growing your money with an AGCU Loyalty Plus High Yield Checking or Money Market Account.

✅ Earn Competitive Interest Rates – Watch your money grow faster than with a standard savings account.
✅ Stay Liquid – Unlike long-term investments, you can access your funds when you need them.
✅ Maximize Your Earnings – Take advantage of rates that reward you for smart banking.

Make the most of your hard-earned money by choosing a deposit account that helps you build wealth safely and securely.

Let’s make tax season work in your favor. Open an account with AGCU today to start managing your money smarter!

*Annual contributions and withdrawal limits are set by Federal Law. AGCU IRAs are federally insured up to $250,000 by the National Credit Union Administration (NCUA) and contributions may even be tax-deductible.

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