Expecting a tax refund? Here’s how to make it count

If you’re expecting a refund from Uncle Sam this year, you’re not alone. Nearly two-thirds (63%) of Americans received an income tax return in 2025, according to the IRS, with an average refund of $2,945. For many people, a refund feels like extra money, and they may already have something in mind about how to use it. When considering how to use a tax refund, we encourage you to see this money as a chance to improve your financial fitness.  

Polling by the National Retail Federation indicates many Americans already have plans for how they’ll use their tax refunds: 

• 52%will apply it to their savings 
• 32%will pay down debt 
• 30%will use it for everyday expenses 
• 12%will apply it to a major purchase 
• 10%will make home improvements 

We believe that using your refund to help you meet your financial goals would be one of the top uses for these funds. Whether you need to boost your savings, reduce debts or have a significant purchase in mind, a thoughtful approach to using your tax refund can have a compounding effect and have a significant impact on improving your financial health. So, if you’re wondering “how can I make the most of my tax refund?”, we have suggestions worth your time. 

Option 1: Build or strengthen an emergency fund 

It’s recommended that every household have an emergency fund they could access at any time and would cover two to three months of living expenses. Unexpected vehicle repairs, replacing an appliance, medical bills or a loss of income could happen at any time, so a financial cushion of any size can help you avoid taking on more debt. 

A survey by the Federal Reserve last year discovered that 63% of American adults said that if they faced an unexpected $400 expense, they would cover it using cash, savings or a credit card they would pay off when their monthly statement arrived. At the same time, 24% respondents said they would cover that expense some other way, with most of them saying they would put it on a credit card and carry a balance for a while.  

This is why one of the best ways to use a tax refund is to start an emergency fund if you don’t already have one, or to increase the one you already have. If you’re starting from zero, putting your income tax refund into a savings account is a great option. You can earn interest on your funds and access them when needed. Using your tax refund this way can jumpstart your savings and help you grow your emergency fund much faster than making monthly deposits. 

Option 2: Pay down high-interest debt 

American households increased their debts by $191 billion in the fourth quarter of 2025, to a total household debt of $18.8 trillion, according to the Federal Reserve Bank of New York. Credit card balances increased by $44 billion from the previous quarter for a total of $1.28 trillion.  

If you’re carrying a credit card balance from month to month and not paying it off in full, you’re not alone. A report by the Federal Reserve Bank of New York last year indicated that 60% of American credit cardholders also carry a balance. The average credit card debt in December 2025 was $6,715 per person, according to the credit reporting bureau TransUnion.  

Using your tax return to make a lump sum payment against your high-interest debts can substantially reduce your borrowing costs over the long run and leave you in a much better financial standing than if you’re just making the minimum payments each month. If you have any high-interest debts that you could pay off completely with your tax refund, you might consider doing so.  

Option 3: Put your refund to work in a CD or money market account 

If you already have a substantial emergency fund and you’ve eliminated any high-interest debts, another great way to use your income tax refund would be to place it in a certificate of deposit (CD) or a money market account, where you could earn more interest than you would with a regular savings account. Both options also have FDIC insurance for added peace of mind.  

A money market account works a lot like a savings account, but with the potential to earn a higher return. Funds in money market are not fixed and can be used for withdrawals, transfers or payments. Most of these accounts require a minimum balance and a set amount for an opening deposit to earn a higher interest rate.  

CDs usually offer higher interest rates than a money market and have a set term, usually 7 to 13 months. Unlike a money market account, funds need to stay in the account for the full term or risk penalties for early withdrawal. CDs are often used by those who already have enough in their regular savings account to serve as an emergency fund and have a specific goal in mind, such as saving up for a major purchase by a given date. 

Option 4: Use it as a down payment for a future purchase 

You may have a major purchase in mind, such as a vehicle, home improvements, appliances or an education fund. If you’ll be financing any purchases, the larger your down payment, the more you can reduce your borrowing costs and help your financial situation over the long run. If your refund and savings won’t be enough for a substantial down payment, consider placing your refund in a savings account as an incentive to set more money aside. By separating your refund from your everyday spending, you can reduce the temptation to tap into this nest egg. 

Option 5: Can you split your refund?

Of course, you don’t have to apply your refund to only one particular goal. You might split it between savings, reducing debts and applying it to your future goals. Keep in mind that even small improvements in savings or debt reduction would be an improvement and much better than spending it on something less important.

Let us help you make the most of your income tax refund 

Ultimately, the “best” use of your tax refund depends on your personal goals and financial needs. We simply encourage you to use it in ways that can best improve your situation, and to use any financial windfall in a way that’s intentional rather than reactive. If you need help comparing your options, we can help you weigh your options.