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Grow Your Refund with a High-Yield Savings Account

Though it's still only February, the IRS has already processed more than 20 million tax refunds this year. At an average refund amount of $3,207 so far, that's a hefty chunk of change you can put to good use.

If you're lucky enough to not urgently need the cash, today's interest rate environment provides stellar conditions for turning that refund into an even larger sum. One easy way to do that is to dump your refund into one of the country's best high-yield savings accounts.

We rank the highest-paying savings accounts every business day, and for months now, the top rate has held at 5.50% APY. There are also another dozen options paying 5.25% or better, and scores of high-yield accounts paying at least 5.00% APY.

How much can you earn? The chart below shows how much a $3,207 refund will be worth if you earn 5.50% for six, nine, or 12 months.

Earn Even More with a Top-Paying CD

Maybe you know that you won't need your refund money—or at least some of it—for a while. If you can commit to keeping your money in savings for some number of months, or even years, you stand to earn even more.

Certificates of deposit (CDs) are a kind of bank savings account that offers a locked rate you can count on for a specified period. Unlike a savings account rate, which can be reduced at any time without warning, the rate you sign up for with a CD is guaranteed for you until your CD's maturity date.

The catch is that, if you need to take your money out of the CD before it matures, you'll be hit with an early withdrawal penalty. So it's best to put savings in a CD that you feel confident you can live without for the full duration of the term.

So how much more can you earn with a CD? As you can see below, only the top 6-month and 1-year CD rates currently outpay the best savings account rate. But you can still win by investing in a longer CD, as the rate you get today is promised to you for the full duration of the CD term—no matter what happens to broader interest rates.

Where Are Savings and CD Rates Headed This Year?

Savings accounts and CDs are paying at or near their highest rates in over 20 years. That's because the Federal Reserve aggressively raised the federal funds rates between March 2022 and July 2023 in a fight against decades-high inflation. When the Fed raises its benchmark rate, it triggers banks and credit unions to raise the rates they pay customers for their deposits.

High-yield savings accounts are still paying their peak rate of 5.50% APY, while CD rates have softened since hitting records across different terms in October and November. However, with rates available in the 4% and 5% range for every CD term, the return you can earn is still historically high.

But these lucky days are limited. Because inflation has cooled somewhat, it's expected the Fed will begin cutting its federal funds rate sometime in 2024. The timing of the first cut is unknown—but when it comes, it will certainly put downward pressure on savings and CD rates. It's also very possible the Fed will implement more than one rate cut this year.

At present, financial markets are placing majority odds on the first rate cut arriving in June or possibly July, according to the CME Group's FedWatch. But that could change at any time based on the Fed's analysis of fresh inflation and jobs data that will be released each month.

In any case, savings account and CD rates are not expected to rise at this point and mostly have a downside risk. So the sooner you can get your tax refund into a high-yield account, the more time you'll be able to enjoy today's record rates.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.