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The average tax refund so far this year is $2,873—here's how two financial advisors suggest you spend it

CFPs from Betterment and Albert weigh in on how to prioritize spending your 2021 tax refund.

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As we quickly approach the extended May 17 tax deadline, Americans who haven't yet filed are busy getting their paperwork in order — with many expecting a sizeable refund in return.

According to latest data from the IRS, over 70 million refunds have been issued so far in 2021 with the average tax refund amount totaling $2,873.

Though a tax refund is essentially money you overpaid the government in 2020, it's easy to see this as free cash and you deserve a splurge. After the year we just had, rightfully so.

"After a long year where normal activities were often not permitted, it's tempting to spend your tax refund on some leisurely fun — and you certainly can set aside some part of it to do that!" says Corbin Blackwell, a CFP at robo-advisor Betterment.

But before you blow that cash in one go, take a minute to think about how nearly $3,000 could impact your overall financial picture. Select spoke with two financial advisors about how best to use this windfall of cash. Here is their advice.

Save for emergencies

Prioritize putting your tax refund toward your emergency savings, says Blackwell.

"If you don't have at least three months saved up, I would put your tax return toward that first and foremost," Blackwell tells Select. "The past year has shown us the importance of having extra cash on hand for the unexpected."

An emergency fund is basically a safety net of savings that should only be used for unforeseen expenses, like a sudden car repair or a surprise medical bill. Having emergency savings in place helps you afford these types of purchases, while also giving you peace of mind if you unexpectedly lose your job.

Most financial advisors recommend that you save three to six months' worth of your living expenses in a high-yield savings account, but most people don't have that much saved up right away. The most important thing is to start allocating a little bit toward savings each month so you can build up a fund.

If you can't/don't want to stash away your entire tax refund into a emergency savings account, just start with $200 or $300 and make a plan to save more every month going forward.

Here's where to put your emergency savings

High-yield savings accounts may have slashed their APYs offered in response to the Fed cutting rates amid the pandemic, but they still outpace the returns on traditional savings. If you're going to put your money into any savings account, opt for one that earns you a higher-than-average APY.

Marcus by Goldman Sachs High Yield Online Savings offers 3.90% APY with no monthly fees and no minimum deposits.

For the potential to earn even more, consider the Varo Savings Account (also with zero monthly fees and zero minimum deposits). New users start off earning 3.00% APY, but can then increase that rate up to 5.00% APY if they meet the below requirements each qualifying period:

  • Make at least five qualifying Varo Bank Visa® Debit Card purchases AND
  • Receive qualifying total direct deposits of $1,000 or more

You'll also need to meet the daily balance requirements:

  • Do not exceed a daily savings balance of $5,000 for the entire calendar month AND
  • Keep your Varo bank account and Varo savings account balances greater than or equal to $0

Pay off high-interest debt (your credit cards)

Generally, credit card issuers charge high interest rates when you carry a balance month to month. With the average credit card APR at 16.28%, according to the Federal Reserve's most recent data, an unpaid balance can quickly balloon.

"Any debt with more than 5% interest rate is what I'd consider a top priority to pay off," Blackwell says.

Most card issuers charge daily interest on your outstanding balance, so the sooner you pay it off entirely the better. If your credit card debt is higher than your tax refund, you may want to use all of the refund to pay it off and then transfer the remaining balance to a balance transfer credit card with an introductory 0% APR period. This way, you have more time to pay down your debt without having to worry about additional interest accruing.

Most cards will charge a balance transfer fee of around 3% of the balance you transfer over (minimum $5), but the Wings Visa Platinum Card stands out for being a no-fee balance transfer option. Cardholders get 0% APR for the first 12 months on purchases and balance transfers (after, 8.15% to 18.00% variable APR).

Plan for retirement

For those who already have adequate savings and no credit card debt, you may want to invest your windfall of cash (or a portion of it) in a retirement account such as an IRA or Roth IRA.

"If you're sitting on some cash from your tax refund, put it to work in a retirement qualified account and let it grow over time," says Michaela McDonald, a CFP at savings and investing app Albert. "The earlier you can designate funds for your retirement, the better."

When planning for your future, investing apps like Albert and Empower (one of our best-rated) can certainly help you visualize how far along you are toward meeting your savings goals, but there are also other resources if you need more personalized attention. You can affordably access advisors and financial planners by signing up for membership plans through companies like The Financial Gym and Ellevest.

Spend on your goals

Whether it's a much-needed vacation away or saving up for a down payment on a home or new car, McDonald suggests using your tax refund to help inch your way toward your bigger goals.

You can use a high-yield savings like the Ally Online Savings Account to create different buckets for each goal and designate a portion of your tax refund to each.

Ally Bank Online Savings Account

Ally Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    3.75% APY

  • Minimum balance


  • Monthly fee


  • Maximum transactions

    Unlimited withdrawals or transfers per statement cycle

  • Excessive transactions fee

    $10 per transaction

  • Overdraft fee


  • Offer checking account?


  • Offer ATM card?

    Yes, if have an Ally checking account

Terms apply.

Bottom line

With the average tax refund at $2,873, you may be able to allocate this windfall of cash to a few different areas. Prioritize your emergency savings and high-interest debt, and then focus on putting some toward retirement funds or other financial goals.

It's OK if you also spend a portion of it on something fun. You might want to consider the 80/20 rule: Put 80% of the refund toward one of those bigger goals and 20% toward something you can enjoy right now. With a refund of $2,873 that would be over $500 to spend on your own wants, which is a pretty nice chunk of change.

Information about Marcus by Goldman Sachs High Yield Online Savings has been collected independently by Select and has not been reviewed or provided by the banks prior to publication. Goldman Sachs Bank USA is a Member FDIC.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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