Refund Anticipation check

bouncy-check-225x300If the government owes you some tax money, it can seem like forever until the check comes or the money gets deposited. And in the mean time, you’ve got bills to pay. And what if you don’t even have a checking account to have your refund deposited into? In the past few years a new option has emerged for helping you get your money faster. But are refund anticipation checks a good idea? Let’s take a look.

Perhaps before diving into the question of the wisdom of a refund anticipation check (RAC) it would be a good idea to consider whether having refund money coming to you is a good idea in the first place. After all, when you get a tax refund from the government, you have lent them your money – without interest – for up to a year. That is money you could have been using to pay your expenses, establish savings, invest toward a goal, etc.

Some people use refunds as a forced savings account. If you feel that is what it takes to enable you to save, then that may be the best option for you. However, if you feel you have better things you can be doing with your money than letting the government hold on to it, contact your HR department to change your withholdings and get more of your money coming to you each month.

How does it work?
RAC’s are often marketed to people who either don’t have a checking account they can have a refund automatically deposited into, or who don’t feel that they have the money to pay for tax preparation up-front. With that in mind, companies that offer RAC’s set up a bank account for you (charging you $30-35 to do it) and have your tax refund directed there. Once your refund comes in, the company takes their tax preparation fees out of your return money, along with any other fees you have agreed to. You are then given a check or a prepaid debit card for the amount left in the account.

If you don’t have an existing account into which your refund can be deposited and are worried about getting your check quickly, know that you will only get your money a few days earlier – at most – with an RAC. That doesn’t seem like such a good deal given that you may end up paying over $100 for RAC services.

Free help is available
If the cost of tax preparation is your concern, be aware that the IRS provides free tax preparation services for anyone who makes less than $51, 000 per year. You can learn more at the IRS website.

Ads for companies offering RAC’s can be very convincing. However, be aware that just because you don’t have a checking account or money saved up for tax preparation doesn’t mean you are at the mercy of companies to perform tax services for you. By understanding your options, you can get your refund money quickly and at little to no charge.

Interesting facts

  • H Block is a tax preparation company in the United States, claiming more than 24.5 million tax returns prepared worldwide, with offices in Canada, Australia and Brazil. The Kansas City-based company also offers banking, personal finance and business consulting services.
    Founded in 1955 by brothers Henry W. Bloch and Richard Bloch, Block today...
  • Republic Bank & Trust Company is a Louisville, Kentucky-based bank.
    In 1977, Republic Bank of Shelby County was formed in Shelbyville, Kentucky. Five years later, in 1982, Republic Bank & Trust Company was founded and headquartered in Louisville, Kentucky. In 1983, Republic Bank & Trust Company acquired Republic Savings Bank in Benton...