5 Smart Ways To Use Your Tax Refund This Year

KEY TAKEAWAYS

• Taxpayers are expected to receive higher refunds during the 2026 tax filing season.
• Savings accounts for themselves, their kids or their retirement can help them earn money.
• Putting their tax refund toward their credit card debt can end up saving them money.

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This year’s larger tax refunds could help put your finances on the right track, depending on how you choose to use that money.

Last year, the average taxpayer received a refund of $3,052, according to an analysis by the Tax Foundation. With new and expanded tax breaks from the “One Big, Beautiful Bill,” the average taxpayer is estimated to receive a $3,800 refund this year, the nonpartisan think tank found.

Why This Matters

Most taxpayers are expected to receive a higher tax refund that, if used wisely, can help them save money and grow their savings.

Here are five smart ways to use your tax windfall to save or earn money.

Put It Into A CD

A certificate of deposit (CD) is a good place to put your tax refund if you want to ensure it grows without the risks of the stock market or the temptation to use it for everyday purchases.

A CD allows you to lock in your money at a fixed, guaranteed annual percentage yield (APY), unlike most savings accounts, which can lower their APY at any time.

Putting money into a CD means locking it up for a set period of time. If you try to withdraw the money before the term expires, you will likely be charged an early withdrawal penalty.

While this can be a good savings tool that forces you to leave your money alone, if you were to run into an emergency expense, your cash would be less accessible than in other savings accounts.

Put It In a High-Yield Savings or Money Market Account

Compared to CDs, a high-yield savings account or a money market account allows you to move money in and out of the account without penalty while offering similar APY rates as a CD account.

According to an Investopedia analysis, the best high-yield savings accounts offer a 5% APY, and the best money market accounts offer a 4% APY.

The highest-yield savings accounts are generally offered online through an internet-only bank or the online division of a brick-and-mortar bank. More often, these savings accounts offer a higher APY than other savings accounts.

A money market account is offered by most banks and credit unions, and, like high-yield savings accounts, it accrues interest at a variable APY. These types of savings accounts typically require a larger deposit, commonly $1,000, and you will normally need to keep the balance high to avoid fees.

Put It Into a 529 Plan

Want to save for your child’s future? Put your tax refund into a 529 college savings plan.

These savings accounts are administered by all U.S. states and the District of Columbia and are typically established by parents or grandparents on behalf of their child or grandchild to pay for college expenses. Funds in a 529 plan generally grow through investments such as mutual funds or exchange-traded funds and offer returns of about 5% to 8%.

In addition, in some states, contributions are tax-deductible. Once your child withdraws funds, they are not taxable as long as they are used for qualified education expenses. Withdrawals used for non-qualified expenses are subject to income tax and typically, a 10% federal penalty.

Recent changes have also made this savings account more advantageous. That includes the ability to convert up to $35,000 into a Roth IRA for your child, if they don’t use all the money for education. In addition, qualified education expenses expanded in 2025 and now include fees for books, tutoring, dual enrollment and standardized tests for K-12 students.

RELATED EDUCATION

How to Turn Your Tax Refund Into $250 a Month All Year Long

What 2026 Tax Bracket Changes Mean for Retirees and Your Financial Future

Put It Into a Retirement Savings Account

Amid economic uncertainty in 2025, more Americans were less confident about their retirement plans than they had been a year earlier. In addition, while Americans contributed more to their retirement accounts in 2025, they also withdrew more emergency funds from their savings.

That means higher tax refunds will be essential for those who are more uncertain about their retirement and want to contribute more to their savings.

There are several kinds of retirement accounts to consider contributing your tax refund to:

Roth Individual Retirement Account: This retirement account does not provide any tax deductions when you contribute to it, but qualified withdrawals in retirement will be tax-free. This type of account is generally appealing to younger workers who expect to be in a higher tax bracket later in life, as their money can grow tax-free.

**Traditional Individual Retirement Account: **This account provides you with a tax deduction for any contributions made, but withdrawals in retirement will be taxed. As most people expect to have less income and be in a lower tax bracket during retirement, it is worth it for many to get the tax savings now.

**401(k): **These retirement accounts are offered by employers, and generally, the employer will match part of your contribution, increasing your overall retirement savings.

Put It Toward Credit Card Debt

In the last quarter of 2025, credit card balances rose by $44 billion, totaling $1.28 trillion. That was 5.5% higher than a year prior, according to the Federal Reserve Bank of New York.

These balance increases, along with rising delinquency rates across all debt types, are why more than one-third of Americans expect to use their tax refund to pay down debt this year.

Missing a credit card payment can significantly lower your credit score, which makes securing other types of loans harder and could cost you hundreds of dollars in interest.

Credit card debt specifically holds the highest interest rates of all other debt types. Currently, the average APR for a credit card is around 25%. That means if you have a $3,000 credit card balance and did not pay it off for a year, you would end up owing an additional $750 in interest charges.

If you instead paid off the entire balance using a $3,000 tax refund, you would have an extra $750 to put toward savings, groceries, and mortgage payments, among others.

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