My issue with tax refunds or how they are distributed in the form of payment is the fact that the recession we have been in for quite a while will soon be just acceped as ordinary economic life. In that people will be paid less and somehow be expected to spend more and ultimately create a debt for themselves as a result. Our freedom is hampered by the fact that jobs are less plentiful and salaries are not consistent with the cost of living or the cost it would take for each individual to live self sufficiently without the aid of the state or government to supply subsidies for housing, food, clothes and transportation. Because of this, the government finds ways to spend money to be returned or refunded to people instead of creating a way to be of supplement to social security once many of us retire. It may be true that many people need their tax returns ahead of any savings to pay off bills and expenses because money from their jobs or fixed incomes is not enough. This country has to get to a point that it must say, something has to be done universally to ensure an interest bearing contribution for retirement, even if that means to offer high yield CD's for that intention. Sure the government offers direct deposit but there needs to be yet another plan to not only spend money but to save it for the long term as well.
How can this be done?
As we complete our 1040's there is usually a line or so on the form that asks you, how do you want your refund? Since there is no box for silver platter we need to create one instead. If the option of CD (certificate of deposit) were created and chosen, this would certainly allow a portion of money to go towards a CD. For example on a $1,000 return you can select $300 towards a CD and then use the rest for a check or direct deposit refund. What does this do? Well, at least you are prevented from spending the money immediately and a CD with 5 to 8 percent interest rate will add up each year. CD's are insured by the FDIC. Credit unions also insure their CD's against loss. CD's have a specific term or maturity date that they can stay in an CD account before you can withdraw them without a penalty. This can range anywhere from 1,3,6 months or even 1 to 5 years, perhaps even longer. The interest is fixed for each term you have the CD until it reaches it's maturity date. The individual purchasing the CD can select how long of a term or maturity date they want a CD for. Once that term expires and it's maturity date is reached then you can withdraw the CD or continue to have it collect interest for as long as you want.
The principle of the CD purchase through your tax refund is to provide a supplement for retirement that will grow interest over the years with very good rates at high yield. By implementing the CD ladder strategy those who choose this as their tax refund alternative are sure to begin yet another way to achieve their retirement goals. The ladder strategy? We all know about that ladder to success. More stones than anything else! As for the state of mind at times. Ok, when jokes sometimes don't always go as planned. The ladder strategy is when one purchases several CD's for different time or term intervals of expiration, known as maturity dates, eg. 6 month, 1 year, 2 year. people do this to get the highest percentage rate. Normally, the longer you invest a CD the higher the percent of return. But you may not want to put all of your money in a 2 year CD because newer and higher interest rates may be offered so you may want to use some of that money for a purchase of a CD with a higher rate. If you have a 6 month CD that is set to expire which gave a 2% rate, you may have the option to take that money and purchase another CD at a newer rate of 3.5% if offered, because the CD has reached it's maturity date of expiration and you are able to use the CD without penalty. So with the ladder strategy you begin to purchase CD's at high interest rates each year and once they reach their maturity date or expire you can either continue the CD at the new rate it is being offered or find another one with a higher rate. In doing so your CD investment portfolio continues to grow.
Make your additional retirement savings just a stones throw away - use your tax refund to open a high yield CD account, so you can at least ladder your way to having more than just a fixed income!