Isn’t just for catsup commercials anymore. It’s making me wait. For my tax refund, instead of getting a refund loan. The Seattle Times article makes the following very important points about managing your finances:
Refunds are rarely a good idea. They represent a no-interest loan you are making to the government. They diminish your current cash flow. If you are consistently getting a large refund, you should adjust your withholding to reduce it.
As noted in the piece, there’s a difference between using the refund as a forced savings program (if you lack the self discipline to set aside regular savings, at least this is a mechanism for doing some saving), and sheer carelessness.
Now, with the forced saving program, assuming that you actually save the refund, the scenario given today’s relatively low rate of return on a bank savings account, the opportunity cost isn’t that high. The higher the projected rate of return on the investment, the worse off the refund savings program is. Most of us would be better off to adjust our withholding amounts, and diverting at least a portion of the increased cash flow to a 401K. Same effect – you are saving, but now you have the possibility of generating significantly higher returns than a bank savings account.
The anticipatory refund loan scheme, on the other hand, is just a recipe for giving even more money away.
“The Consumer Federation of America and the National Consumer Law Center recently issued their annual study on refund-anticipation loans, and noted that the average loan of just over $2,000 (after filing fees have been paid) will cost about $100.
That's 5 percent of the loan amount.
It sounds cheap, until you consider the time frame, namely days or weeks. The effective annualized rate of interest is frightening. Simply put: An annualized rate of about 40 percent for these loans would be a bargain.
The less you borrow, the worse the situation.”
Actually, the less you know, and the more desperate you are, the worse the situation.
File the papers and wait the 3-5 weeks for your refund. File electronically, shell out the $14.95, (maybe free if the rebate center doesn’t “lose” your forms), and get the money in two weeks.
Change your withholding amounts. Increase your 401k or other payroll deduction savings. Even savings bonds would be a better investment.
And never, ever, ever, go to a paycheck advance business.
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