Jump to Main Content

5 ways to make your tax refund work for you

woman sitting at her kitchen counter looking at her laptop and paperwork

Did you get a tax refund this year? If so, you may want to think twice before heading out the door on a spring spending spree! Applying your tax refund to outstanding debt or savings may make better financial sense.

Here are 5 ways to make your tax refund work for you:

1. Pay off your credit card

If you carry a balance and pay monthly interest on a credit card, you aren’t alone – many Canadians don’t pay their credit card balances off in full each month. If you get a refund this tax season, using that money to reduce your credit card balance is a great option to save money. For example, if you get a $1,000 refund and apply that money to pay down a credit card with an interest rate of 19.99 percent, this would save you roughly $200 in interest in one year.

2. Pay down your mortgage

The prepayment privilege of your mortgage may allow you to make extra payments without penalty, giving you the option to pay off your mortgage faster. Applying your tax refund directly to paying down the principal on your mortgage can be a real money saver because as the principal shrinks, so does the amount of interest owed. In fact, if you make a $1,000 prepayment on a $200,000 mortgage with a 4 percent interest rate and 25-year amortization, that would save you about $602 in interest over your 5-year term, and even more over the course of the mortgage.

Use our mortgage calculator tool to help calculate potential savings on your mortgage.

3. Make an early RRSP contribution

Using this year’s tax refund to make an early RRSP contribution will put your money to work immediately to earn investment income within a tax sheltered retirement plan.

4. Boost your child’s education savings

If you are a parent who hopes your children will pursue a post-secondary education, a tax refund is a great way to jumpstart their education savings.

Open a Registered Education Savings Plan (RESP) for your child to qualify for the Canada Education Savings Grant (CESG), which will give your contribution a 20 percent boost right away. Your child will need a Social Insurance Number (SIN) to qualify, and depending on your family financial situation and home province or territory, your plan may be eligible for additional financial assistance.

5. Build your emergency fund

If you don’t have enough savings to cover at least three months of living expenses, consider using your tax refund to start (or grow) an emergency fund. Also known as a “rainy day” fund, this money may be used to cover expenses in case of job loss, inability to work due to an accident or illness, or unexpected car repairs or home expenses. 

To make the most of an emergency fund, check out Meridian’s Good To Grow High Interest Savings Account.

Learn more about how to make the best use of your tax refund by speaking with a Meridian Advisor today.