Make the most of your 2008 tax refund

Hand putting coin in white piggy bank

In a recession, the best thing to do is to save it.

A total of 3.6 million jobs have been lost since the start of the recession in December 2007, and unemployment is expected to continue to rise this year.

If you're suddenly laid off, you'll need every cent you've got to keep your bills paid, your home out of foreclosure and the repo guy away from your car.

We know the average tax refund is only about $2,500. That's only enough for what? One, maybe two months' worth of bills?

But it's a great start, or worthy addition, to any rainy day fund.

Just stash your emergency cash where it's safe and easy to reach when you need it.

Don't worry if you're only earning 1% or 2% a year. The point is to weather the storm, not get rich. (You can do that after the economy has turned around.)

Deposit your tax refund in:

A savings or money market account. If you're just beginning a rainy day fund, this is where to start. Just make sure you put the government check in a new account that's separate from the checking or savings accounts you use for day-to-day expenses.

Our extensive database of the best savings and money market accounts allows you to compare interest rates and minimum deposits among dozens of federally insured banks.

Don't be surprised if many of the best deals are from online banks.

They operate much like your neighborhood bank. The major difference is that you'll conduct most of your business, whether it's checking interest rates or moving money into your savings account, by computer.

Take full advantage of local credit unions, too. They also offer competitive rates, and it's easier than ever to join because restrictive membership rules have been relaxed.

Here's how to find a credit union in your area.

A money market mutual fund that invests in Treasury bonds.

You can't get any safer than U.S. government debt. These bonds are widely considered one of the most secure investments in the world.

The funds are available through Charles Schwab or Vanguard, two no-frills, low-cost brokerage firms.

A short-term certificate of deposit. This can be a good bet if you already have some money stashed away in a savings or money market account and are using your tax refund to bolster your emergency fund.

Our database of the best CD rates allows you to compare interest rates among dozens of federally-insured banks.

If you already have an emergency fund that will cover six to nine months of expenses (yeah, we'd normally say four to six months, but the economy is really bad), here are three more smart moves for your tax refund:

Smart move 1. Attack high-interest credit card debt. Paying double-digit interest on your credit card balance dwarfs the returns on other investments, making it very difficult to get ahead.

See how much you can save on interest by paying off your credit cards.

Smart move 2. Get a head start on maxing out your Roth IRA. If you're under 50, the contribution limit is $5,000 this year. If you are 50 or older, the limit is $6,000.

Smart move 3. Haggle for something you have been eyeing. The recession has made merchants eager to strike a deal on everything from furniture to jewelry and cars.

Get the most for your money by comparing prices, getting written proof of what rivals are offering and driving a hard bargain. When you approach a merchant, be friendly, offer to pay in cash and be willing to walk away. You might just get what you want.