Record Rates Make CDs a Smart Place to Invest Your Tax Refund

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With certificate of deposit (CD) interest rates at their highest on record, if you're getting a tax refund, parking it in a CD could be a smart bet. Average CD rates haven't been this high in the nearly 14 years that the FDIC has records for, and today's best CD rates are the highest in the four years that Investopedia has been tracking them.

CDs today are a good place to save money you don't need for a while because you lock in a high, fixed rate. No one knows what will happen to interest rates later this year, but the Federal Reserve is expected to nudge the federal funds rate up once more this year before leveling off and eventually lowering rates. CD rates tend to move with the fed funds rate.

The average tax refund this year is $2,910, and the best rates on all CDs today range from 4.68% to 5.35% APY, depending on the term. If you don’t need your tax refund immediately for another expense, investing $2,910 in one of those CDs could mean earnings of $36 to $748, depending on the term.

Top CD Rates Today and Interest Earned on the Average Tax Refund

CD Term Top CD Rate Initial Deposit Interest Earned at Term End Total Value of CD After Term
3 months 5.00% APY $2,910 $35.71 $2,945.71
6 months 5.25% APY $2,910 $75.41 $2,985.41
1 year 5.25% APY $2,910 $152.78 $3,062.78
18 months 5.25% APY (18-23 months) $2,910 $232.14 to $299.85 (depending on term) $3,142.14 to $3,209.85
2 years 5.35% APY (22 months) $2,910 $291.77 $3,201.77
3 years 5.00% APY (24-35 months) $2,910 $298.27 to $445.02 (depending on term) $3,208.27 to $3,355.02
4 years 4.73% APY $2,910 $590.88 $3,500.88
5 years 4.68% APY $2,910 $747.73 $3,657.73

If you invested the average tax refund in a top-paying 1-year CD today, you could grow it by over $150. And if you could sock it away for longer, you could earn even more. While the top rate on a 1-year CD is 5.25%, the top rate on a CD of any term today is 5.35%, which applies to a 22-month CD from Langley Federal Credit Union. At that higher rate, you could earn $291.77 in interest on a tax refund of $2,910 after 22 months—nearly double what you’d earn on the 1-year CD.

The $2,910 we’re referring to is the average of all refunds. People who signed up for direct deposit have a slightly higher average refund, at $2,970. Put that in a CD with a top rate and you could earn between $36 and $764 in interest, depending on the term.

While a 1-year CD and a 22-month CD may pay well, you may need your money sooner than that. If you don’t want to risk paying an early withdrawal penalty, a 6-month CD may be a better option. With the average tax refund of $2,910, you could earn $75 in a 6-month CD.

CDs lock up your money for a specific period of time. If you want to keep it liquid so you can access it whenever you need to, a high-yield savings account may be a better option. The highest savings account rate is currently 5.02% APY. While most CD rates—those on 6-month, 1-year, 18-month, and 2-year terms—pay more than the highest savings account rate today, the savings account gives you more flexibility. You could put your tax refund in an account that pays 5.02% APY and earn almost $150 in interest in one year.

CD Rates Today

The national average annual percentage yields (APY) on CDs are much lower than the top rates offered from nationwide banks and credit unions today. The interest rate on a CD can greatly impact the amount of money you earn on your deposit.

For example, the current national average rate for a 1-year CD is 1.54% APY. If you invested $2,910 in a 1-year CD with that rate, you’d earn $44.81 when the term ended. But by choosing to invest $2,910 in a 1-year CD with a top rate of 5.25%, you’d earn $152.78—about $108 more.

Grow Your Tax Refund

While investing your tax refund in a CD once you get it from the IRS can help you grow it for the future, it’s wise to do all you can to maximize your refund before you even file your tax return. Lower yor taxable income through tax deductions like contributions to a retirement plan and qualified charitable donations, and make sure you choose the right filing status. Check whether itemized deductions or the standard deduction is best for your situation, too. Then, once you know your tax bill, make sure you claim all of the tax credits for which you’re eligible. Lastly, before next tax season, check your withholding and update it if necessary.

The bigger your tax refund, the more you can earn in interest if you invest it in a high-interest CD or savings account.

Rate Collection Methodology Disclosure

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD'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.

This article was originally published on April 11, 2023. It was updated on April 19, 2023, to include the most recent rates tracked by both Investopedia and the FDIC.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. FDIC. "Historical National Rates and Rate Caps." (Clicking downloads an Excel spreadsheet.)

  2. CME Group. "CME FedWatch Tool."

  3. IRS. "Filing Season Statistics for Week Ending March 31, 2023."

  4. FDIC. "National Rates and Rate Caps."