If you get a tax refund instead of owing money on your taxes, it can be tempting to spend this money. While there’s nothing wrong with splurging a little, these extra funds have the power to relieve some of your financial burdens and potentially earn you more disposable income over time. The reward of financial stability means you can treat yourself—now and in the future. 

The guide below includes some smart ways to use your tax refund. The items below aren’t a checklist per se, but more of a discovery of what you can do with your tax refund. If you plan on getting money back this year, it’s worth checking out these scenarios to decide which ones fit into your financial planning goals for the year. 

1. Establish or add to an emergency fund

If you don’t already have an emergency fund, use the money you get back from your tax return to create one. Banks offer several types of savings accounts, from your traditional setup to money market accounts. Review the terms and conditions—including minimum opening balance requirements—and find the best account for your situation. 

If you have an emergency fund established, calculate how much of your refund you want to put into savings. It’s best to have three to six months’ worth of income in your emergency fund. Remember, you don’t have to put it all into savings; there are plenty more ways to spend your refund, as listed below. 

2. Reduce high-interest debt

Paying down debt benefits you in multiple ways, from reducing your debt-to-income ratio—which is great if you plan on getting a loan in the near future—to decreasing your credit utilization and potentially increasing your credit score. It’s best to tackle high-interest debt first because it’s costing you more to borrow those funds than your lower-interest loans. Examples of high-interest debt include student loans, credit cards, personal loans, and auto loans. 

Determine your highest-interest debt by reviewing your loans and their corresponding interest rates. Rank your loans from the highest interest rate to the lowest and use the money you get back from your tax return to start whittling away at them. Even if you can’t pay off your high-interest debt completely, it’s worth reducing it to below 30% usage to impact your credit score positively. 

3. Progress toward a savings goal

Savings goals can exist separate from your emergency savings. As you set aside a little bit every month, you get closer to realizing your savings goal. When put toward smaller savings goals, your tax refund could mean the difference between meeting these goals in three to six months or accomplishing them immediately. 

For those who have multiple savings accounts or may be saving up for more than one thing at a time—like a house down payment, a vacation, or auto repairs—determine how you want to break up your tax refund among these savings goals. Even adding $50 or $100 to your goal can accelerate your progress. 

4. Deposit your refund into a CD

Let your refund money work harder for you. A certificate of deposit (CD) is a savings solution that earns a competitive interest rate over a fixed period of time. If you don’t need easy access to these funds, this is a great opportunity for you to lock in a rate for a specific term. You can also create a CD ladder to turn your tax refund into recurring returns. A CD ladder is a savings strategy where you spread your funds across multiple CDs with staggering maturity dates. Adding to an existing savings account or opening a new savings account is another great way to earn interest safely.

5. Fix your car

If you’ve been waiting on your tax refund to get some much-needed work done on your car, now’s your chance to mark this maintenance off your to-do list. Tax refunds can pay for new tires or major repairs you’ve been putting off. You can also use these extra funds as a down payment on a new car, whether or not you trade in your old vehicle. 

 6. Fund home improvement projects

Use your tax refund to help fund the home improvement projects you’ve been putting off. Improving your home can pay serious dividends in the future when you sell it and benefit you and your family in the meantime. However, home improvement projects can sometimes snowball out of proportion, so it’s best to set a budget you can stick to. If you’re handy with tools, you can also potentially save some money to put toward other goals by doing some of the work yourself. 

7. Maximize your retirement account contributions

The Internal Revenue Service (IRS) sets annual limits on retirement account contributions based on your age and compensation. Reaching these limits each year can help you maximize your retirement savings. If you haven’t reached this year’s limit, you might consider putting the money you get back from your tax return into an individual retirement account. Whether you pick a Traditional or Roth IRA, contributing as much as you’re allowed enables you to save more for retirement. 

8. Diversify your income sources

The concept of using money to make money can also apply to diversifying your income by adding a secondary income. If you’ve wanted to start a side business and just needed capital, your tax refund could be the answer. For example, you could use your refund money to learn a new skill, buy necessary equipment, attend a conference, or get additional training to help you break into your side hustle.

9. Travel

They say money can’t buy happiness, but it can purchase a ticket to a destination you’ve been wanting to visit. After the pandemic, many people have begun prioritizing these experiences. Traveling abroad also offers several benefits beyond some time away from home. 

At the same time, traveling doesn’t have to mean visiting another country. Instead, you can spend time in the U.S. by visiting one or more places on your bucket list. Even if it’s only a weekend getaway a few hours away from home, it’s often worth the time and money. 

10. Splurge

The tax refund you get represents the hard-earned money you paid to the IRS to cover your tax burden, so why shouldn’t you benefit from it? Splurge and use the money on something to reward yourself, whether it’s a new outfit, a night out on the town, a new tool for your garage, or whatever else you’ve had on your wish list. 

11. Donate to charity

Consider donating some of your tax refund to your favorite charity or a cause you care about. This is a great opportunity to encourage others to donate to your charity, as well. You can also volunteer and donate your time, which can be more valuable.

Use your tax refund wisely

If you plan on getting a tax refund, make a list of all the ways you want to spend it. Use the list above for inspiration, and then prioritize which actions are most important to you. When you’re ready to put your tax refund to work, we’re here for your financial needs, from opening a savings or money market account and more.  Explore all of our products and services and reach out to us for personalized assistance by stopping by one of our branch locations or contacting our Customer Care Center.