Survey: Nearly half of Americans expecting a tax refund say they’ll use it to save or pay off debt, instead of as fun money
After filing your taxes, getting a tax refund in the mail or by direct deposit can feel gratifying. Sure, it came out of your annual income — and a refund might suggest you should adjust the amount withheld from your paycheck — but it doesn’t hurt to receive that extra cash.
As it turns out, almost half of Americans expecting a tax refund will either put that money toward a savings account or debt repayment. Fewer will spend their refund on things like day-to-day expenses and lifestyle purchases.
According to a new Bankrate survey, 28 percent of Americans expecting a tax refund plan to use most or all of the money to boost their savings. They’re followed by the 19 percent who plan to pay down debt, including credit card debt. The results are a change from last year, when more people said they’d pay off debt (28 percent) than those who’d save their refund (26 percent). In fact, the 2024 survey shows the lowest preference for debt payoff in a decade.
“Many households would be well-served by putting some of their tax refund toward debt payoff and some toward savings.”
— Ted RossmanBankrate Senior Industry Analyst
Key insights on how Americans plan to use their tax refunds
Key insights
Most Americans expect a tax refund this year. Two-thirds of U.S. adults expect a tax refund this year. Boomers are the least likely to anticipate a tax refund compared to Gen X, millennials and Gen Z.
Many will add their tax refund to savings or use it to pay off debt. 28 percent of U.S. adults expecting a tax refund plan to use most or all of the money to boost their savings, while 19 percent plan to pay down debt.
Fewer will put their tax refund toward things like a vacation or home improvements. Smaller groups of U.S. adults plan to use most or all of their tax refund money for day-to-day expenses (11 percent), investments (9 percent), home improvements (9 percent), vacations (7 percent), retail purchases (4 percent) or something else (4 percent). Eight percent have not yet decided how they’ll use their tax refunds.
Gen Z is more likely to invest their tax refund than other generations. Debt payoff was second for all but Gen Zers, who put savings first (23 percent), investing second (16 percent) and debt payoff third (11 percent).
More than 1 in 4 Americans expecting a tax refund plan to add it to their savings
The most popular option for over one in four of Americans expecting a tax refund in 2024 is to use it to boost their savings. That may be based on the current state of Americans’ rainy day funds. According to Bankrate’s 2024 annual emergency savings report, more than half of U.S. adults are uncomfortable with their level of emergency savings. And more than one in five adults have no emergency savings.
On the heels of those tax refund savers are the roughly one in five Americans planning to pay off debt with their tax refund. Debt payoff used to be more of a priority, according to past surveys:
2023: 28 percent
2022: 23 percent
2021: 25 percent
2020: 24 percent
Given that credit cardholders are increasingly likely to carry credit card debt — 49 percent of cardholders were “debt revolvers” in 2023, compared to 39 percent in 2021 — the decrease in priority may come as a surprise. With credit card interest rates hovering around 20.75 percent, however, consumers may be aware that debt can grow quickly if it’s not paid off — or that it can lead to bad credit if utilization grows beyond a certain point.
Another 11 percent of Americans expecting a tax refund plan to use it to cover day-to-day expenses. The remaining Americans plan to spend it on fun purchases such as vacations, retail purchases or home improvements, or are undecided.
— Ted Rossman | Bankrate Senior Industry Analyst
Only 1 in 5 Americans plan to use their tax refund as fun money
Receiving a big chunk of change could seem like an opportunity to retile your kitchen or head abroad on an international trip. But only 20 percent of Americans expecting a tax refund plan to spend it as fun money.
Of those expecting a refund, 9 percent plan to make home improvements, 7 percent plan to spend it on a vacation and 4 percent plan to splurge on retail purchases.
“It doesn’t have to be all or nothing. Consider carving out a little bit of fun money while you’re at it.”
— Ted RossmanBankrate Senior Industry Analyst
It’s worth noting that three in four Americans earning under $50,000 are living paycheck to paycheck. For folks trying to make ends meet, a tax refund isn’t just free money — it may be an extra way to fund the things they need, not want.
Gen Z is more likely to invest their tax refund than other generations
According to Bankrate’s survey, 67 percent of Americans expect a tax refund in 2024. Here’s a breakdown of who’s expecting a refund by generation:
Boomers: 57 percent
Gen X: 67 percent
Millennials: 76 percent
Gen Z: 75 percent
Of those Americans expecting a refund, Gen Z put investing as more of a priority than other generations. In fact, 16 percent of Gen Zers who expect a refund plan to invest it. This reflects a trend noted in Bankrate’s 2023 investor survey — that Gen Z is currently the most active investor demographic. Almost nine in 10 Gen Z investors bought, sold or withheld additional investment in 2023, followed by seven in 10 millennials and half of Americans overall.
With retirement in the distant future and less credit card debt and emergency savings, Gen Z is positioned to take more risks and earn interest on their money, including their tax refund.
1 in 4 Americans with credit card debt have used some or all of a tax refund to pay it off
With credit card debt on the rise, 82 percent of credit cardholders have had credit debt at some point in their lives. And the most popular method to pay it off is to reduce expenses — thus dedicating more money to credit card debt repayment.
Of Americans who have had credit card debt, 35 percent have cut expenses, 25 percent have used some or all of their tax refund and 24 percent have applied for a 0 percent balance transfer credit card to pay off the debt.
Other credit card debt payoff strategies — in order of popularity — include working extra hours or taking on a side hustle, asking a credit card issuer for a lower interest rate, using a personal loan, using a home equity loan and/or line of credit, signing up for a debt management plan, filing for bankruptcy and pursuing debt settlement.
4 ways to use your tax refund in 2024
Whether you decide to follow in the footsteps of many Americans or use your tax refund for something else is up to you. Here are a few ways to consider using your tax refund in 2024 that could benefit your financial health — and maybe even cover that fun purchase you’ve been eyeing.
1. Pay off debt
It usually costs money to borrow money. And if you’re carrying debt with a high interest rate, those interest charges can add up fast.
Certain types of debt may come with higher interest rates than others. For instance, student loans and auto loans typically have manageable rates — and it’s common to pay these loans off over time. But things like credit card debt, personal loans and payday loans often carry high rates and can quickly become unmanageable.
If you have high-interest debt, it may be a good idea to tackle that debt first with your tax refund. More steps to paying off debt could include creating a budget and repayment plan.
Money tip: But if your debt has a reasonable interest rate that you’re comfortable paying over time, then one of the other options below might be a good use of your tax refund.
2. Build an emergency fund
Saving money can be tough if paychecks are tight or monthly bills are high. But experts recommended keeping at least three to six months’ worth of expenses set aside in case of an emergency. This might include job loss, unexpected medical bills or property damage. It’s usually simpler and more affordable to pull from your savings, rather than go into debt, to cover emergency costs.
If your emergency savings amount isn’t where you’d like it to be, consider boosting it with your tax refund. The Consumer Financial Protection Bureau says that “if you receive a large check from a tax refund or for some other reason, it’s always good to consider putting all or a portion of it away into savings.” And having enough money tucked away can offer you the financial security you need to pay for more fun things in the future.
A high-yield savings account (HYSA) could help you build your emergency fund. You’ll earn a competitive annual percentage yield (APY), which currently averages around 4.69 percent. And the account is liquid, which means you’re not locked into a set time period before you can withdraw the money if an emergency does occur.
3. Invest for the future
If you’ve got expensive debt paid off and emergency money in your back pocket, it might be time to pad your long-term investments with your tax refund. If you’re willing to take on risk, your money could grow more over time than it would sitting in a bank account.
A few options for investing include mutual funds, dividend stocks and IRAs. Things like your risk tolerance and timeline will play a big part in how you grow your money. There are many ways to invest, and it might help to talk with an investment advisor.
4. Pay for a big purchase
Finally, there’s nothing wrong with putting your tax refund toward a big-ticket purchase — especially if the alternative is to put it on your credit card or take out a loan. Here are a few ways you could use your tax refund as fun money:
Pay for a home improvement project
Buy a flight for your next vacation
Invest in a new skill or training course
Purchase a gym membership
Buy the inventory you need to start a small business
Donate to a cause you care about
In fact, paying for that exciting thing now might give you the boost you need to manage debt, grow your savings and invest this year. Your tax refund comes from your hard-earned money, so be sure to spend it responsibly in a way that fits your lifestyle.
Methodology
This survey has been conducted using an online interview administered to members of the YouGov Plc panel of individuals who have agreed to take part in surveys. Emails are sent to panelists selected at random from the base sample. The email invites them to take part in a survey and provides a generic survey link. Once a panel member clicks on the link they are sent to the survey that they are most required for, according to the sample definition and quotas. (The sample definition could be “US adult population” or a subset such as “US adult females”). Invitations to surveys don’t expire and respondents can be sent to any available survey. The responding sample is weighted to the profile of the sample definition to provide a representative reporting sample. The profile is normally derived from census data or, if not available from the census, from industry accepted data.The total sample size for this study was 2,239 US adults, of whom 1,505 were expecting a tax refund. Fieldwork was undertaken between 24th – 26th January, 2024. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).
