Impulse saving: Tax time can be best time to save for many

For many low-income families, there just doesn't seem to ever be any extra money that they can put into savings — except at one time every year: tax season. So when that refund or Earned Income Tax Credit comes in, it is often the biggest lump sum of income they will see all year long.

"We are big believers that tax season is a nearly unparalleled savings opportunity for most people," says Timothy Flacke, the executive director of "Doorways to Dreams" or D2D Fund.

D2D is a nonprofit organization that tries to encourage lower-income people to improve their financial independence through saving money. Tax time refunds — or more specifically, the moment when people calculate how much money they are going to get after filing taxes — hang there like fat juicy peaches ready for the plucking.

Liz Thomey agrees. Thomey is the program director for the "Assets for Family" program at the Piodecimo Center in Tucson, Ariz., where she, among other duties, helps lower-income families with their taxes.

"Some of these families earn less than $15,000 a year," Thomey says. "So, realistically, when they file a tax return, this may be their only opportunity to save."

What was needed was a program that made impulse saving easy.

Before 2007, a person would have to cash the refund check and then deposit it in a savings account or maybe buy a U.S. savings bond. Each step made it less likely to save. In 2007, the IRS introduced split refunds, which enabled people to divide their refund and direct portions of it into savings or checking accounts.

The problem with this as a solution, however, was that it didn't help the unbanked and underbanked Americans. It also meant that when the person was having his taxes prepared (such as the free tax services Thomey at Piodecimo provides), he would have to have remembered to bring account information, including routing numbers.

In 2009, however, a better method was found by allowing people to choose, using IRS Form 8888, to put some of their refund into U.S. savings bonds. The "Tax-Time Savings Bond" program continues today and is currently the only way to still get savings bonds on paper.

This made it easier for portions of the approximately $115 billion returned to lower-income Americans (less than $40,000 a year income) to be put aside for the future.

But only portions.

As Thomey explains, the majority of the money from refunds, averaging $1,680 per lower-income household, goes to bills.

It can be a hard sell.

"We don't try to be pushy about it," she says, "but we bring it up as much as we can."

Making it fun

Flacke says the D2D Fund found a way to encourage the savings more: prizes. Using donations from places such as the Annie E. Casey Foundation and Capital One Investing for Good, D2D set up a website, saveyourrefund.com, where people who save a part of their federal refunds have a chance to win weekly prizes. There will be 40 winners in all, with prizes of $250 and one grand prize winner of $25,000.

The Tax-Time Savings Bond program enabled 35,007 people in the 2012 tax season to save $20.3 million in savings bonds. The average amount saved was $579.

Most of the people Thomey has seen use this opportunity are saving for long-term goals such as retirement, buying a home or their kids' educations.