January 30, 2026

Tax Refunds & Employment Bonuses: Should You Spend, Save, Or Invest?

 

Tax season can be a stressful and frustrating time of the year, especially if you owe money. But if you're one of the lucky ones receiving a refund, or if you’ve recently earned an employment bonus, it's easy to forget all the hassle once that extra cash hits your account. According to the IRS, the average refund for the 2024 filing season (as of May 10, 2024) was nearly $3,000. Whether it’s a refund, a bonus, or another windfall, deciding whether to spend, save, or invest can feel overwhelming.

 

A 2025 survey by the National Retail Federation and Prosper Insights & Analytics found that:

• 49% of Americans planned to save their 2025 tax refund

• 33% planned to pay off debt

• 28% planned to cover everyday expenses

• 20% planned to make a major purchase or a “splurge” purchase

• 10% planned to tackle home improvements 

• 10% planned to put it toward a vacation

 

Before you decide what to do with any large sum of money, it's important to assess your individual financial situation. Ask yourself: 

• Do I have an emergency fund?

• Am I carrying high-interest debt?

• Could I pay down my mortgage? 

• Am I on track for retirement?

Once you’ve answered these questions, here are smart ways to put that extra cash to work.

 

Build Your Emergency Fund 

Many Americans have little to no savings. If that’s you, consider putting your newfound funds into a savings account. An emergency fund helps you avoid high-interest debt when life throws a curveball. Instead of maxing out a credit card, you’ll have peace of mind knowing you’re covered. Plus, your savings will earn competitive dividends and grow over time.

Jumpstart your emergency fund with a BCU Rainy Day Savings account. An initial deposit of $3,000 with additional deposits of $25 per month could save you up to $61.25 annually*. *Visit BCU.org/rates for current rates. 

 

Tackle High-Interest Debt

Credit card debt can drain your finances. Applying your refund or bonus as a lump sum payment can save you thousands in interest and shorten your payoff timeline. For example:

$10,000 in credit card debt at 15% APR, with $200 monthly payments, takes 79 months and nearly $6,000 in interest to pay off. 

Factor in a $3,000 lump sum payment, and you could be debt-free in 47 months — saving over $3,500 in interest!

Consolidate your debt with a BCU Personal Loan for flexible terms and funding to fit your needs, or transfer debt to a BCU Credit Card for a lower rate and faster payoff.  

 

Invest In Your Future

Many Americans have no retirement savings at all. If you’re on track with debt and savings, start thinking more long-term. Contributing your extra cash to an IRA can help you grow your retirement savings tax-advantaged. For example, a $3,000 contribution earning 6% annually, accounting for a 3% inflation rate and 24% marginal tax rate, could grow to:

• $4,015 in 5 years

• $5,373 in 10 years

• $9,621 in 20 years

Even small steps today can make a big difference tomorrow! 
Note: Depending on your age and/or income, you may not be eligible to contribute to a Traditional or Roth IRA. For definitive guidelines, consult the IRS website.

 

Pay Down Your Mortgage

Homeowners can use a lump sum to reduce their mortgage balance, saving thousands in interest and shortening the life of the loan. For example, applying $3,000 toward a $200,000 mortgage at 4.5% could shave 11 months off your term and save over $8,000 in interest. Hear experts talk through mortgages and insurance in this Life. Money. You. Podcast episode. 

Before making extra payments, check your loan terms for prepayment options. Aside from making a lump sum payment, you can also recast or refinance the loan. Learn more about how each option can impact your mortgage differently. 

 

The Takeaway

Whether it’s a tax refund, an employment bonus, or another financial boost, the key is to make your money work for you. Start by evaluating your priorities—emergency savings, debt reduction, retirement, or mortgage payoff—and choose the strategy that best supports your goals.

Ready to take the next step? Explore BCU’s high-yield savings options, low-rate personal loans, balance transfer options, retirement accounts, and mortgage offerings; or meet one-on-one with a Certified Financial Coach to make the most of your extra cash. 

Ready to experience the credit union difference? Become a member of BCU!