Seven ways to leverage a tax refund into big savings or gains

The Canada Revenue Agency reports that close to two of three people who filed their taxes already have received a refund, and the average amount is $2,113. That’s enough to do something for your personal finances with lasting benefit. Here are some ideas:

• Add the money to the down payment for your next vehicle purchase: Financing a new vehicle these days is alarmingly expensive as a result of high interest rates and prices. The more you put down, the less you need to borrow.
• Add it to a child or grandchild’s registered education savings plan: Contribute $2,113 to an RESP and you get $422.60 added to the plan via the Canada Education Savings Grant. A guaranteed 20 per cent return.
• Add it to a first home savings account: The contribution will generate a tax refund for the 2024 tax year, and you’ll benefit from tax-free compounding in the account. You can withdraw money from an FHSA tax-free as well.
• Add it to your registered retirement savings plan: Puts you on the path to another tax refund for the 2024 tax year, plus you benefit from tax-free compounding in your RRSP over the years.
• Buy a one-year guaranteed investment certificate: With a rate of 5 per cent, still widely available from alternative banks, you’re guaranteed to have $2,218.65 in 12 months. If you use a tax-free savings account, you can shelter your GIC interest from tax.
• Pay down debt: The interest rate on card debt is around 20 per cent and won’t budge when the Bank of Canada starts lowering rates later this year. A home equity line of credit typically has a rate around 7.7 per cent these days, which means expensive minimum monthly interest-only payments if you have a large balance.
• Start or build up an emergency fund: The latest numbers from the job market suggest some slippage, and that in turn raises the risk of layoffs and reduced hours of work.