Why More Americans Are Saving Their Tax Refunds | American Funds

  • Forms
  • MY ACCOUNTS
  • INVESTMENTS
  • INSIGHTS
  • PRODUCTS
  • PLANNING
  • SERVICE & SUPPORT

By the Numbers

April 21, 2017

Most Taxpayers Expect a Refund. Save It or Spend It?

According to the IRS, more than 70% of taxpayers will receive tax refunds in 2017. Unfortunately, about half of them squander this opportunity to shore up their finances.

48% — Percentage of taxpayers expecting a tax refund who plan to save it this year

Last year, the average refund amount was $2,860. That’s a substantial sum for most people, and it can be tempting to splurge. If you’re expecting a tax refund, are you planning to spend it, or save it?

Nearly half (48%) of taxpayers who expect a tax refund plan to save it this year, according to a recent poll from the National Retail Federation (NRF). That number is second only to last year’s record high of 49.2%, and it’s much higher than the 37.2% who said they planned to save their refund in 2008.

Why are taxpayers hanging on to their refunds? Many learned a valuable lesson from the Great Recession and have become more focused on their financial security, even as the economy has improved, says Pam Goodfellow, consumer insights director at Prosper Insights & Analytics, which conducted the survey for the NRF. “We’ve seen a fundamental shift in the way consumers approach spending and saving,” she says.

Once you’ve decided not to spend your refund, you can do more than put it in a savings account. Now is a good time to think about your financial future. You can use the money to pay off high-interest debt or to build up your emergency fund. You could increase your contributions to your tax-advantaged retirement accounts.

Think about investing in the stock market, which has historically delivered higher returns than savings accounts or other short-term fixed income investments. By purchasing an equity mutual fund, you can diversify your stock holdings, gain access to professional management, and choose from a wide range of investment options.

If you were to invest your $2,860 in an investment that grew at an annual rate of 5%, in 10 years that single tax refund would amount to $4,659.* You might want to calculate the potential growth of your refund before heading out the door to spend it.

 

Source: “NRF Says Consumers Plan to Save Their Tax Refunds for Later,” NRF Press Release, Feb. 22, 2017.

*For illustrative purposes only, not intended to portray actual investment results.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Past results are not predictive of results in future periods.