The Average Tax Refund in 2024 Is $3,213. Should You Use Yours to Open a CD?

As of the latest IRS data for the week of Feb. 23, 2024, the average tax refund for the 2024 tax-filing season is $3,213. Getting a tax refund always feels good, because it feels like "free money" or an extra windfall. Many people use their tax refunds to pay off debt, boost their emergency savings, or splurge on a vacation. But if you want to earn higher yield on your savings, and if you've been thinking about opening a CD, your tax refund could give you a good opening deposit.

Let's look at a few options for how to use tax refunds to open CDs, and how much you can earn.

Why open a CD with your tax refund?

CDs can be a good choice for your savings because you get a fixed rate of interest that is guaranteed for a certain "term" of time. In case the Fed cuts interest rates in 2024, locking in a high APY today on a CD could help you earn more money on your cash than you'd get from even the best savings account.

Here are a few reasons why opening a CD could be a good choice for your tax refund.

Your tax refund is "extra" savings

Many people look forward to filing taxes and getting a tax refund because it's a one-time windfall. Unless you get a big bonus, pay raise, or promotion at work, for a lot of Americans a $3,213 tax refund might be the biggest chunk of "extra money" you see all year.

Because you weren't using that tax refund money throughout the past year to pay monthly bills or contribute to other savings accounts, it often feels like "extra" money. You might be tempted to spend some of this cash, and that's OK. If you have high-interest debt that you can pay off with your tax refund, do that.

But if you want to increase your savings, putting some (or all) of your tax refund into a certificate of deposit (CD) can be a good choice. It can be hard to save up enough money to make a significant opening deposit on a CD. If your tax refund just gave you a big pile of cash, put some of it into a CD.

CDs often require a one-time opening deposit

Most banks require you to make a single, opening deposit into the CD, and then you can't put more money into the certificate after that. You have to commit a certain amount of money to a CD all at once. (There is one special type of CD called an "add-on CD" that lets you add more money into the CD after it's open, but most banks don't offer it.)

This one-time deposit makes CDs a good fit for your tax refund, because a tax refund is "one-time" money that you get all at once. Instead of a savings account, where you can contribute $50 or $100 (or more) per month, CDs require you to commit a certain amount of cash upfront, all at once. If you're ready to commit some money for a certain length of time, CDs will reward that commitment.

CDs let you lock in a high APY

The best reason to open a CD with your tax refund is that it gives you a chance to lock in a higher APY. High-yield savings account APYs are good -- sometimes better than CDs -- but they are not fixed. In case the Fed cuts interest rates in 2024, which it could do as soon as June, savings account yields will come down too.

Putting money into a CD in March 2024 could help you extend today's high APYs for a longer period, even if the Fed cuts interest rates in 2024 and keeps the rates at lower levels in 2025 and beyond. No one knows for sure what the Fed will do next, but if you're willing to commit your money to a CD for several months or a few years, it could help you earn the highest yield on your cash.

How much the average tax refund can earn with CDs

Let's look at a few options for how much you can earn on an average $3,213 tax refund with some of the best CDs with 1-year, 2-year, or 3-year terms.

Note: All rates were available as of March 7, 2024; $3,213 is enough to meet the minimum deposit requirements for all CDs shown below.

The longer you leave your money invested in CDs, the more money you'll earn. But keep in mind that your CD's APY is only guaranteed for the length of the term. For example, if you open a 1-year CD, in case interest rates go down during the next 12 months, your next 1-year CD could have a lower APY.

Bottom line

Opening a CD can be a good way to use your tax refund. But you don't have to put every dollar of your tax refund into a CD. Other options could include paying off debt or putting cash into a high-yield savings account.