Tax returns must be filed with the IRS by April 15. While most people do not enjoy filing their taxes (remember that there can be serious consequences for failing to do so), receiving a tax refund is always a good moment. Many taxpayers receive between a few hundred and a few thousand dollars after filing their tax return! Of course, many need to use the refund to pay overdue bills or to handle an emergency – but what if that is not the case? While it may be tempting to spend a tax refund right away, ProsperityME’s financial experts recommend saving the money, rather than going out and spending it.

Here are five clever uses for a tax refund that will save money in the long run.

Open an emergency savings account
An emergency savings account is a critical financial buffer that provides financial security in the event of an emergency situation. Emergency situations can include many months of unemployment, an illness, an accident, or an urgent purchase that cannot wait. Emergency savings accounts can protect consumers from the negative, long-term effects of using credit cards or predatory loans to cover basic expenses. Experts recommend that consumers try to keep between three and six months of living expenses in a savings account. While this goal can be difficult for many people to reach, a yearly tax refund, when combined with a thoughtful monthly budget and a savings plan, can bring this goal into reach.

Pay down existing debt
Living is expensive, and it’s very tempting for people living paycheck-to-paycheck to use the “easy” money of a credit card, check-cashing service, or payday loan to make ends meet. However, the long-term financial consequences of these behaviors can be disastrous. Interest payments on these types of loans can be as high as 20% (a shocking rate) and long repayment periods can siphon thousands of extra dollars out of consumer pockets. We recommend that people with credit card debt or with outstanding high-interest loans use their tax refunds to pay off the balance as soon as possible. Although loans with interest rates below 5% may be credit-building and helpful to pay on schedule if a consumer wishes to improve poor credit, ProsperityME recommends paying off debts as soon as possible in most situations.

Save for a down payment on a car or home
Some of the most important things in life are the most expensive, and most American consumers need to rely on loans to afford transportation and housing. Low-income, immigrant taxpayers may struggle to access the low-interest rates that make these loans accessible, when compared to the average consumer. However, shopping around for the best rate or making a large down payment can make a big difference. So using a tax refund to help with a down payment on a car or a home is a smart financial decision that could open up more financing options – a larger down payment can often translate into a shorter term loan, with more generous financing options.

Invest in a retirement or education fund
Many immigrants don’t immediately think about saving for retirement. However, aggressively funding a 401K or an Individual Retirement Account (IRA) is one of the best ways to ensure a family’s long-term financial stability. Retirement payments start at age 65. Well-funded accounts can cover living expenses for retired people, allowing the family to focus on younger generations, rather than on scrambling to care for their elderly family members. Many employer-provided 401K accounts include a savings match and partnerships with a financial planner who can advise participants on long-term savings decisions. For those without an employer-provided retirement account, most financial institutions are happy to help customers access these accounts. Education savings plans are not offered through employers as often as retirement accounts, but an individual education savings account can be set up much the same way.

Open a high-yield savings or checking account
High-yield checking or savings accounts reward consumers for saving their money by providing a much higher interest rate – as much as 2-3% higher – on the account each year. High-yield accounts reduce the impact of inflation on money saved long-term. (Inflation is the increase of living expenses over time, which results in a decrease in purchasing power.) There are many high-yield saving and checking accounts available, but not all are insured by the Federal Deposit Insurance Corporation (FDIC). Many local financial institutions have good FDIC-insured options available that they recommend to their clients. Choosing the “right” account can be as easy as making a list of desired features (such as easy international money transfers, or no checking fees) and then contacting a local branch to ask about available options.


Choosing the best long-term saving plan is unique to each person, and it may take some time to decide the right path forward. ProsperityME can help! We offer one-on-one financial counseling to immigrant community members at no-cost to help people make the right financial choices for their situations. Counseling sessions are confidential, and we don’t sell or promote services to our clients.


To schedule a session with one of our counselors, contact our main office at (207) 797-7890 or email [email protected]