Broadcast Retirement Network’s Jeffrey Snyder discusses what to do with your larger than expected tax return with U.S. Bank’s Derik Farrar.
Jeffrey Snyder, Broadcast Retirement Network
Derik Farrar joins me this morning from U.S. Bank. Derek, great to see you.
Thanks for joining us this morning.
Derik Farrar, U.S. Bank
Jeff, great to be here. Thanks for having me.
Jeffrey Snyder, Broadcast Retirement Network
Absolutely. And I don’t know if you know, but it is time for all Americans to file their income taxes. This is a unique moment, I think, though, Derek, because the amount of refunds potentially are going to exceed anything that we’ve had in recent time.
Derik Farrar, U.S. Bank
Acutely aware. It’s part of my day job is to help people make best use of their tax refunds. So I’ve already been looking at some of the data from our side.
Jeffrey Snyder, Broadcast Retirement Network
And tell me a little bit about the size of these refunds. They’re going to be a lot bigger this year.
Derik Farrar, U.S. Bank
Yeah, it’s interesting. So our first week of data that we saw, refunds are definitely higher than they were last year. Maybe not quite as high as some of the original projections stated.
But I do have a theory as to why that is, which I think typically when we look at tax refunds, the people who get in week one are typically some of the highest refunds because they’re the people who are anticipating or highly certain they’re going to get a refund. Whereas this year, I think there were people who maybe paid a little bit last year who were optimistic that they might swing over into the refund category. So we’ve only seen 4% of the refunds that we saw last year.
So long way to go, but encouraging start.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, absolutely. I mean, hey, the deadline is the 15th, I believe. So a little bit of time to file.
But Derek, this is a really important time. If you’re going to get that refund deposited into your account, there are a lot of things you can do with it besides spend it, Derek. You can actually use this as an opportunity to build wealth.
Derik Farrar, U.S. Bank
Yeah, absolutely. I think one of the most important things that you can do is to make a plan before you get the refund. All the research we’ve seen, whether it’s financial services or otherwise, it shows that when someone has an intentional plan about how they’re going to do something, they’re just way more likely to follow through on it.
So whether that plan is to pay off high interest rate debt, whether it’s to save more, whether it’s to invest, having the plan before you get the refund or even before you know what the refund is can help you make better use of it.
Jeffrey Snyder, Broadcast Retirement Network
So how do you prioritize? I mean, I think a lot of Americans, I can’t speak for them, but I can speak for myself. Affordability is a big issue.
Some of us may carry credit card debt. You hinted at that. Some of us may just want to get a first crack at saving for retirement.
How do you start out? You talked about financial goals and in the piece you wrote, you talked about financial goals. How do you prioritize what’s the most important?
Derik Farrar, U.S. Bank
Obviously, it varies by individual. So mathematically, paying off high interest rate debt is almost always going to be the highest immediate return. But then on the other hand, having six months of income or six months of expenditures for a lot of people, that’s the same number, can really give somebody a lot of flexibility in terms of how they navigate their financial life and can prevent you from having to have to access high rate debt in the first place.
So some people may want to pay off and then also try to build up that nest egg. And then obviously, after you’ve taken care of the debt or gotten that to a manageable level and have six months of savings, that’s when most people will start to look at starting to invest either for the immediate future or for retirement, as you mentioned.
Jeffrey Snyder, Broadcast Retirement Network
And I think you were talking about emergency savings. It’s always good to have a nest egg. Obviously, you work for a big financial banking institution.
How do you figure out what type of account to open? I mean, I’m not saying it’s going to vary, obviously, by personal choice, but there are checking accounts, there are savings accounts, there are certificates of deposits that go three, six, nine, 12, 18 months. That, I think, is probably a challenge in and of itself.
Derik Farrar, U.S. Bank
Yeah, I would say so virtually everybody who is filing taxes and getting a refund already has a checking account. And one of the things that can help you get the most out of that is to designate an account, whether it’s a CD, whether it’s a liquid savings account that isn’t the checking account. So you sort of remove that immediate temptation to spend the money when it comes in.
Or obviously, you can designate, and we think this makes a lot of sense, whether it’s 5%, 10% of the refund to do something fun or enjoyable or whatever might be a treat for you. But if you’re putting it into a CD or putting it into a liquid savings account, actually probably matters a little bit less just in the current interest rate environment, because as you know, there’s a lot of uncertainty about the path of rates and various people have expressed their desires about which way they should go. Inflation probably not fully cooperating yet.
But historically, there’s way less difference between what a high-yield savings account is paying and what a CD is paying for under 12 months. I think make the plan and then decide what’s best for you. But find a place to put it where it’ll be earning some interest.
Jeffrey Snyder, Broadcast Retirement Network
And it really does help. I mean, we’re in the world of artificial intelligence. There are chatbots everywhere.
There are text messages and emails. But it really does pay to sit down with a financial professional. He or she can really help guide you.
You don’t have to necessarily be in it alone.
Derik Farrar, U.S. Bank
Yeah, absolutely. Start with your bank. Start with your banker.
Have a discussion about, a longer-term discussion too, about just sort of what your goals and objectives are and what you’re saving for. And that’s going to be a combination of things that you want to do next year, whether it’s a vacation for your family, something for your kids, and then sort of what the longer-term aspirations are. But definitely, most people are going to be way better off if they’re working with their financial institution or a strong bank that can help you navigate some of these decisions.
Jeffrey Snyder, Broadcast Retirement Network
And these aren’t the banks of when I was a kid in the 1970s or 1980s. They’ve come a long way. They’ve got a lot of tools, calculators, a lot of products and a lot of services.
They serve a lot of businesses, but they also serve a lot of individuals. So the times they are changing, they have really changed in the last 20 years.
Derik Farrar, U.S. Bank
Yeah, I mean, that’s absolutely right. And at U.S. Bank, we’re really proud of all of our digital app. It’s always very highly rated, tons of helpful calculators, tools, ways to track spend, ways to plan, ways to set goals and then monitor your progress for them.
So while some people will want to do it live with a banker, other people will want to just sort of do it on their device. And we can help accommodate both.
Jeffrey Snyder, Broadcast Retirement Network
Absolutely. Well, Derek, it takes personalization where it’s at. Thanks so much for joining us.
We look forward to having you back on the program. We’ll have to talk after tax season. Good to see you.
Thanks for joining us this morning.
Derik Farrar, U.S. Bank
Absolutely. Thank you, Jeff. Take care.