Why You Should Have a Holiday Savings Account

The first holiday savings account began over a century ago at the Carlisle Trust of Pennsylvania. Their “Christmas Savings Club” attracted 350 customers, each saving up a significant holiday fund of $28 for the time. Today, many options exist for those wanting to save for holiday gifts. Let’s explore savings accounts for holiday spending to see if one might be right for you.

What is the history of a holiday savings account?

Traditionally, holiday savings accounts were a way for consumers to set aside money throughout the year that would be dedicated to holiday spending. These accounts earned a small interest rate, known as the annual percentage yield (APY), and eventually reached a promised payout amount.

In early December, the bank would issue a paper check for the balance. The extra money was intended to help with holiday expenses. Holiday savings accounts had a few drawbacks though. Early withdrawal penalties were often severe. There were fees for a holiday account passbook, late deposit charges, mailed reminders, and so on. And the interest rates of those holiday funds didn’t typically add up to much.

What are the advantages of a holiday savings account?

Despite these drawbacks, today’s holiday savings plans still offer a useful service. Customers who maintain their deposits can take pride in preparing for the holiday season.

Let’s review some advantages of having a separate account for holiday expenses:

• It keeps your money separated. People often raid their emergency fund for holiday needs, drawing from their reserve cash earmarked for unexpected expenses. But holidays aren’t unexpected, and using your emergency fund for holiday gifts is a bad idea.
• Holiday savings accounts encourage you to save regularly throughout the year. You can set up automatic transfers from your checking account to your savings account.
• Some banks and credit unions offer special low-fee holiday savings accounts with perks like automatic deposits, user-defined disbursement dates, and integration with a mobile banking app.

What are the alternatives to a holiday savings account?

There are several other ways to save for the holidays.

• High-yield savings accounts or a money-market accounts may provide higher returns than a standard holiday savings account but require higher balances to avoid fees. Some only allow limited withdrawals, but that can work to your advantage. Mutual fund accounts offer even higher returns but typically carry higher risks. Many allow you to make weekly or monthly deposits for no additional fees.
• Set up a ladder for certificates of deposit (CD). Invest in a 60 or 90-day CD, and when it matures, roll it over into another short-term CD. Time it so that the last CD matures in mid-November, right before the Black Friday sales.
• Cash in on gift cards. Look for those forgotten gift cards and use them for gift purchases or re-gift them. Some websites will even purchase your gift cards. You’ll get cash for them, minus a percentage and handling fee.

A few other savings tips

Maybe you’re finding it hard to boost your savings as much as you’d like. Don’t worry, there are still other ways to save for holiday expenses.

• Rewards credit cards
  Some cards offer 1% to 5% back on what you spend. At the end of the year, trade your points for cash back and add it to your holiday fund.
• Search for coupon codes
  Look online for sites that offer free codes. Not all will work, but it’s worth trying. Even 5% off helps. Other coupons might offer free shipping or other discounts.
• Get a side gig
  A small side job can add extra money to your savings. Working a few hours each week can add up by the holiday season. Take a weekly shift at a coffee shop, resell items on eBay, or deliver grocerys in town. These can all earn you extra cash for the holidays.
• Trim your budget
  Drop one of those unused streaming services. Pack a lunch once or twice a week instead of eating out. Go with the generic option over the name-brand to save a bit.

Conclusion

Saving for the holidays doesn’t have to be hard. By using these tips and being mindful of your spending, you can build a nice holiday fund. Whether you choose a traditional holiday savings account or try some of the other methods mentioned, the key is to start early and stay consistent. Happy saving!

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.