4. FORCES SAVINGS.
Using a big refund as forced savings is a lazy but easy way to set money aside.
Personal finance blogger J.D. Roth, editor of the website GetRichSlowly.org, confesses to liking lump-sum windfalls as a way to save. He used the approach for years as what he calls a psychological trick to remove the temptation to spend immediately, putting the annual checks toward savings, debt payments and indulgences he wouldn't otherwise have been able to pay for.
Roth has since sworn off getting large refunds and the "mathematical penalties" they entail after developing more willpower. But if the practice helps someone else avoid squandering their money, he's all for it.
"I would rather have people save money in a suboptimal way than to have them not save money at all," he says.
5. COSTS LITTLE IN LOST OPPORTUNITIES.
The meager interest rates offered by CDs and money-market savings accounts mean you're not missing out on much income by waiting to get your money.
That will change as rates rise, but they have a long way to go. One-year bank certificates of deposit pay an average of 0.34 percent and money markets average a scant 0.14 percent, according to Bankrate.com.
The Tax Institute at H&R Block ran the numbers for different scenarios and found that the opportunity cost for overpaying taxes isn't much at current interest rate levels.
Take the case of taxpayers who set aside $100 per pay period, or $2,400 over the course of a year. If they had put the full amount in an interest-bearing checking account with typical returns of 0.25 percent for a year instead, they would earn interest income of just $6.
That's a little over $5 after taxes — not much of a disincentive against fat annual refund checks.
Personal Finance Writer Dave Carpenter can be reached at www.twitter.com/scribblerdave .
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