Tax Changes Are Bringing Bigger Refunds in 2026: Here’s What to Do With Yours

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

The average tax refund hit $3,521 as of the week ending March 27, an 11.1% increase over the same point last year, according to the IRS. The bump reflects retroactive 2025 tax cuts in the One Big Beautiful Bill Act (OBBBA), including expanded standard deductions, a higher Child Tax Credit, and new deductions for tips, overtime, and older adults.

The IRS issued more than 62 million refunds totaling about $222 billion this filing season, up to late March. Most filers either have their refund in hand or will soon.

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

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.

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.

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.

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.

Amid economic uncertainty, more Americans are less confident about their retirement plans. In addition, while Americans contributed more to their retirement accounts last year, 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, many of whom match a portion of employee contributions up to a set percentage of salary.

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. As of February, the average APR nationwide for a credit card was 21%. 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 $630 in interest charges.

If you instead paid off the entire balance using a $3,000 tax refund, you would have an extra $630 to put toward savings, groceries, and mortgage payments.

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