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How to make your tax refund grow

Did you get a tax refund this year? You may want to think twice before heading out the door on a spring spending spree. Applying your tax refund to outstanding debt or savings may make better financial sense. Here are five ways to make that tax refund grow your finances. 

Pay Off Your Credit Card 

If you’re paying interest on your credit card because you carry a balance, you aren’t alone. According to the Canadian Bankers Assocation website, 40 percent of Canadians don’t pay their credit card balances off in full each month. Yet with an average credit card balance of $3,745 (as of November, 2015, according to a Transunion press release) and an interest rate of 19 percent (a “regular” rate according to Financial Consumer Agency of Canada), interest adds up fast. 

If, however, you use your tax refund to pay off that $3,745, you’d save $711.55 in interest in one year!

Pay Down Your Mortgage

The prepayment privilege of your mortgage may allow extra payments without penalty, giving you the option to pay off your mortgage faster . This is a powerful way to turn your tax refund into a real money saver when the extra payment is applied directly to the principal, because as the principal shrinks so does the amount of interest owed.

For example, if you make a $2,000 prepayment on a $200,000 mortgage with a 4 percent rate and a 25 year amortization, you’ll save $3,329 in interest over the course of the mortgage, money that could be used to build your savings.

Use our mortgage calculator tool to calculate the savings on your mortgage.

RRSP Contribution

Why not get a head start on next year’s RRSP contribution? Use this year’s tax refund to make a contribution right now so your money goes to work immediately to earn investment income within a tax sheltered retirement plan.

RESP Contribution

If you’re a parent who hopes their children will pursue a post-secondary education, a tax refund is a great way to jumpstart their education.

Open a Registered Education Savings Plan (RESP) for your child to qualify for the Canada Education Savings Grant (CESG), which will give your contribution a 20 percent boost right away. Your child will need a SIN number to qualify, and depending on your family financial situation and home province or territory, your plan may be eligible for additional financial assistance.

Start or Build an Emergency Fund

Do you have enough savings to cover at least three months of living expenses? If not,  use your tax refund to start (or grow) an emergency fund. Also known as a “rainy day” fund, this money may be used to cover expenses in case of job loss, inability to work due to an accident or illness, or unexpected car repairs or home expenses – new furnace, anyone? 

To make the most of an emergency fund, check out Meridian’s Good To Grow High Interest Savings Account.

 Visit your Meridian branch​ today to learn more about how to make the best use of your tax refund.