Here’s the Average Tax Refund 2021 and How To Spend It

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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

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 0.50% 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 0.20% APY, but can then increase that rate up to 3% 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)

Plan for retirement

Spend on your goals

Ally Bank Online Savings Account

  • Annual Percentage Yield (APY)

  • Minimum balance

  • Monthly fee

    No monthly maintenance fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

    Yes, if have an Ally checking account

Bottom line

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.