What’s the best thing about tax time? That’s easy – getting a bumper tax refund injected into your bank account. This year, 8 in 10 Aussies are expecting a tax refund, averaging about $2,112 each.
That’s enough to buy you a pair of Gianvito Rossi Suede Boots ($2,105) or an MSI Gaming Laptop ($2,099). But designer boots are fleeting, and financial security is forever, which is why 1 in 5 people say they’re going to save that cash instead.
We’d usually be thrilled to hear that except… interest rates are so low! Even the best savings accounts are taking a hammering, and with an average interest rate of just 2.03%, in five years a savings account would earn you just $225 in interest. Which, to be fair, is $225 you didn’t have before.
But at Mozo, we figured you could do a little better than that, so we’ve crunched the numbers and come up with the top 5 ways to spend your tax refund and get your budget in even better shape than before.
1. Stick it in a term deposit – $323 interest over 5 years
One step up from a savings account is stashing your refund away in a term deposit. While interest rates have been slipping on savings accounts, rates on term deposits longer than 1 year have actually gotten a boost. The average is now 2.89% for a 5 year term, so as long as you’re willing to lock that money away for the next five tax returns, you’ll come out of it with a nice little rainy day fund.
2. Give your super a boost – $7,280 over 30 years
If you’ve got no outstanding debt and no immediate spending plans, then saving for your future retirement is a savvy way to spend those tax refund dollars. The average return on a super account is 5.10% – which is much better than a savings account. The catch, as with a term deposit, is that once you say goodbye to that money, you won’t see it again for a while.
3. Invest in an ETF – $856 over 5 years
Always fancied yourself as an investor but never had a chance to start? Well, now’s the time. Put your tax refund to good use in an exchange traded fund and you could see a 7.04% return over the next 5 years. Make sure you check out our investing hub for all the need-to-know info before you start!
4. Put it towards your home loan – $144 over 1 year
So you’ve got a $300,000 home loan, and now, conveniently, you also have a nice little lump sum to spend. Hmmm, could these things somehow work together to save you a bunch of cash? Why yes, now that you mention it! If your home loan allows you to make free extra repayments, then getting a tax return back is the perfect excuse to do so. Just remember, the sooner you pay off the mortgage, the less interest you’ll pay, and the sooner you’ll own your dream home.
5. Blast your credit card debt – $367 over 1 year
Even though we’re all getting more responsible with flashing our plastic around, the average Aussie credit card debt is still $4,300. Ouch. If you’ve been a little spend happy with your credit card this year, you’ve still got the chance to redeem yourself by using your tax return to pay down that debt. Mozo found it was one of the best ways to spend your tax refund and still come out on top, so what are you waiting for?
Will you be putting your tax refund to good use this year? Let us know what you’ll be spending yours on.