2025 Tax Refund: What $2,948 Can Really Buy You Today

Diccon Hyatt is a seasoned financial and economic journalist with extensive experience covering the pandemic-era economy through clear and insightful reporting. His work focuses on how economic trends affect personal finances and the broader market. He has contributed to U.S. 1, Community News Service, and the Middletown Transcript.

Key Insights

• In 2024, the average tax refund is $2,948, marking a 3.8% increase from last year, according to IRS data.
• Most recipients plan to save their refund or reduce debt, while others consider investing or taking a vacation.
• High interest rates make certificates of deposit (CDs) attractive, while recent stock market gains offer potential for higher returns with some risk.
• Rising borrowing costs mean paying down debt can provide significant financial relief depending on loan types.

As tax filing season wraps up, millions of taxpayers anticipate receiving their refunds. The IRS reports over 119.6 million returns filed, with 62% resulting in refunds. The average federal refund stands at $2,948 as of April 2024.

Recent surveys reveal that many choose to use refunds to bolster savings or chip away at debt, with fewer opting for discretionary spending like vacations or luxury purchases.

So, what can $2,948 really do for you in the current economic landscape? Here’s a detailed breakdown of practical and rewarding options.

Savings

Saving remains the top preference, with 40% of taxpayers intending to stash away their refunds, per a Lincoln Financial survey.

Thanks to inflation-driven interest rate hikes, savers can earn up to 4.7% annually on five-year CDs, per ZAMONA’s latest figures. This means your $2,948 refund could grow to approximately $3,709 in five years—an extra $761 with zero investment risk.

For long-term planning, 13% plan to contribute their refunds toward retirement. A 35-year-old investing this amount in a traditional IRA could potentially accumulate over $22,400 by age 65, assuming a 7% yearly return.

Investments

Those open to higher risk might consider investing for greater returns over a shorter period.

For example, $2,948 could buy around four shares of Nvidia (NVDA), a leading computer chip company that has surged more than 50% so far this year. However, remember that past performance does not guarantee future gains.

Alternatively, diversifying through an ETF like the SPDR S&P 500 ETF Trust (SPY), which averages 10.26% annual growth, could grow your refund to about $4,402 over five years, though with greater risk than CDs.

Home Down Payment

Putting your refund toward a home down payment is a tangible investment, though challenging amid rising mortgage rates and home prices.

Redfin reports the average down payment in February was $55,640. Consistently saving your tax refund annually without price changes could take 18 years to reach that target.

If renting, your refund can cover one month’s median rent in cities like Providence, RI, and Washington, D.C., while in places like Houston or New Orleans, it would stretch over multiple months. It falls short for high-cost cities like New York, Boston, or Los Angeles.

Debt Repayment

Many prefer to use their refunds to reduce debt, which is prudent given increased borrowing costs due to the Federal Reserve’s high interest rates.

Student loan debt averages $37,037 per borrower, so your refund could reduce nearly 8% of that balance.

Car loan payments average $735 monthly for new cars and $546 for used cars; your refund could cover about four to five months of payments.

Credit card debt averages $6,501, and a refund could pay off close to half of this amount.

Vacation

Despite rising travel costs, $2,948 can still fund memorable trips.

Roundtrip airfare to international cities such as Rome, Melbourne, or Tokyo is attainable within this budget, leaving money for accommodations.

Closer to home, you could enjoy a two-night stay at upscale hotels like the Beverly Hills Hotel in California.

Correction–April 22, 2024: Updated to reflect the accurate number of Nvidia shares purchasable with the average tax refund.

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