May is a month to celebrate.
We start strong with the first of May. Then comes Star Wars Day – also called my birthday – Cinco de Mayo, Mother’s Day (reminder! May 8!), Memorial Day and dozens of other fake marketing holidays that fall in between. (Did I mention my birthday?)
In the middle of all the festivities, it can be difficult to get some time for your financial health. But we’re here to help. Every month, Money gives you a great financial checklist to help you live your best life. This month we are talking inflation, tax rebates and savings for college.
Here are the best money moves for May.
Fight inflation with I-bonds, now with an interest rate of 9.62%
At 8.5%, inflation is at its highest level since December 1981, according to the Ministry of Labor. This is partly due to the sky-high costs for gas, housing and vehicles.
If the sky-high prices for everyday goods were not bad enough, inflation is likely to eat away at your savings as well.
For example, the money in your savings account right now – probably a paltry 0.06% interest rate – is rapidly losing value.
The good news: Uncle Sam offers a secure way for you to protect your savings from inflation with Series I Savings Bonds, also known as inflation-linked bonds or I-bonds. And in May, I-bonds look more attractive than ever before.
Today, the US Treasury Department, which issues the bonds, announced the new annual interest rate: 9.62%, the highest interest rate ever since I-bonds were created in 1998. Again, compared to the average interest rate of 0.06% on savings accounts (or even by 0.5%, if you have a high-yield savings account), I-bonds sound like a no-brainer.
To lock in that interest rate of 9.62% for six months, you must buy them between now and the last banking day in October, as the interest rate changes every six months to take inflation into account.
Although there is a lot to love about I-bonds, remember that there are important caveats you should consider before buying:
- I-bonds have an annual purchase maximum of $ 10,000 for electronic bonds and a maximum of $ 5,000 for paper bonds.
- Although you can purchase electronic bonds at any time on TreasuryDirect.gov, paper bonds can only be purchased when you file your federal tax return, and you must choose to use your repayment money to purchase them.
- You will not be able to withdraw them within a year (unless in an emergency). If they are paid out within five years, they lose the last three months’ interest.
2. Budget your tax refund wisely
Tax rebates are especially important for people this year, given the decades-high inflation rate. Sky-high prices have led many to hold back on large purchases such as cars and homes. And inflation has helped about a quarter of Americans miss at least one bill payment, according to a recent report from Capital One.
So far this year, the IRS says the average repayment is north of $ 3,000, and the agency has already pumped out nearly 89 million repayments.
For many, that cash surprise is just what is needed to regain their financial foothold. But when the money rolls in, you may be tempted to take revenge — spend it after weeks, months, or even years of austerity.
Although experts recommend that you avoid seeing your repayment as play money, they see the benefit of using some of it to treat yourself – as long as it’s about 5% to 10% of the total repayment.
One of the first things you want to do when the refund hits your account is to catch up on your bills if you were one of many who were lagging behind recently. Then experts recommend one of the most important personal financial steps: make sure you have an emergency savings fund (perhaps in I-bonds?) That can cover between three to six months of expenses. If that box is already checked, pay off any credit card debt.
From there, it’s a smart move to keep at least a portion of it in a 401 (k) or Individual Retirement Account (IRA). Finally, you can put any remaining repayment money toward a long-term goal – such as buying a home or financing your wedding – or using it to pay off other high-interest debts.
Take advantage of a 529 college savings plan
May 29 is National 529 Day – since 5/29 – making this as good a time as any other to praise the education savings plan.
So what is a 529 plan, exactly? In short, it is a fiscally advantageous way to save money on qualifying education costs, including tuition, books, board and diet and more. Almost every state offers a 529, although the exact plans and benefits vary by state.
Most states allow you to deduct your contributions from your state income tax. And withdrawals are not subject to federal taxes as long as they are used for eligible expenses.
While 529s are often referred to as “college savings plans,” you can now also use them to pay up to $ 10,000 per year for tuition costs associated with public or private elementary and high schools, according to the IRS.
In addition, anyone can open a 529 for any person, including themselves. The beneficiary does not have to be a child.
Around this time of year, many states have special offers to open 529 plans around National 529 Day. For example, Utah residents can get a grant match of up to $ 40 to open a new account and cancel recurring payments. Several other states offer similar incentives. Check with your state’s 529 provider for vacation deals.
To celebrate our 50th anniversary, we have gone through decades of our print magazines to find hidden gems, fascinating stories and vintage personal finance tips that have stood the test of time. Dive into the archives with us.
More from Money:
Will student loan forgiveness finally come? Here’s what we probably know
Too hot housing market? What to do while waiting for the competition to cool down
Less than half of Millennials are expected to own a home in retirement
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