Financial Planning
couple looking at their holiday savings account

Key takeaways

  • Some lending institutions offer holiday savings accounts to accommodate savings year-round.
  • Consumers can create separate savings accounts to act as a holiday fund and set up automatic money transfers and/or deposits.
  • A designated holiday savings account could help you avoid tapping into an emergency fund or other accounts.

The first holiday savings fundstarted well over a hundred years ago at the Carlisle Trust of Pennsylvania. Their “Christmas Savings Club” boasted 350 customers, with each customer saving up the sizeable-for-the-time holiday fund of $28.

Similar clubs, or funds, were quite popular for many years, and the concept is still solid. These days, many options are available for people who’d like to build up some savings for holiday gift-giving.

If you’d like to learn more about how to save money, Best Egg Financial Health is a great resource. You’ll find information on building a holiday budget, finding credit card rewards, understanding credit scores, and much more. Check it out.

What is a holiday savings account?

Traditionally, a holiday savings account was a way to get consumers to make regular deposits throughout the year. The savings accounts earned a nominal interest rate, called the annual percentage yield, and eventually reached a promised payout amount.

Around the beginning of December, on the annual disbursement date, the bank would issue a paper check for the balance. The Carlisle Trust’s promotion described it as, “just when a little cash is most welcome.” That extra money would help with holiday expenses and cover some holiday shopping costs.

The traditional holiday savings account suffered from a few downfalls. Early withdrawal penalties were often severe. There were fees added for a holiday account passbook, late deposit charges, mailed reminders, and so on. And the typical low interest rates of those holiday funds didn’t add up to much.

What are the advantages of a holiday savings account?

Even with these drawbacks to holiday savings plans, they still provide a useful service. Customers who maintain their deposits can take pride that they are preparing for the holiday season.

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

  • It keeps your money separated. Along with a checking account, a good budget includes an emergency fund to cover unexpected expenses. Unfortunately, people are often tempted to raid their emergency fund to pay for holiday needs. But holidays aren’t unexpected and raiding your emergency fund for holiday gifts is a bad idea.
  • Holiday savings accounts spur you to save regularly throughout the year. You can set up automatic transfers from your checking account to your savings account.
  • Some payroll systems let you allocate a percentage of your pay to be deposited into different accounts. Have a set amount of your pay automatically sent to a separate savings account—and earmark it for holidays.
  • Some banks and credit unions still offer special low-fee holiday savings accounts. Some come 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 you can save for the holidays.

  • Open a high-yield savings account or a money-market account. Although these usually provide much higher returns than a standard savings account, they also 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 they typically carry higher risks, as well. Many will allow you to make weekly/monthly deposits for no additional fees.
  • Another traditional savings method is to 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 all the Thanksgiving season sales kick off.
  • Go old school by packing loose change and spare bills into a jar. Every time you end up with cash or coins in your pocket, tuck it away. If you get a rebate in the mail, cash for returned items, or something similar, add it in. Of course, there’s no interest building up—but there aren’t any fees either. It’s an easy way to start saving.
  • Tax refund? Stock dividends? Win a few dollars on a lottery ticket? Or maybe a friend finally paid back the 20 bucks they borrowed last year? Put that “found money” into your fund instead of spending it.
  • Don’t let gift cards go to waste.Many are lost, thrown away, or just plain forgotten. 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.

  • Use a credit card that pays rewards to make your purchases. At the end of the year, redeem your points or dollars for cash back. Put it into your holiday fund. Some cash-back credit cards offer from 1% to 5% back on purchases. Leverage your (responsible) spending to your benefit and add that bonus to your savings.
  • Look for coupon codes, especially if you’re shopping for big-ticket items. Search the internet for sites that freely provide various codes. Not all of them work, but it’s often worth the effort. Even a “5% off” coupon is helpful. (For a $800 big screen TV, that 5% will save you $40.) Other coupons might get you free shipping or other discounts.
  • A small side hustle could help put a few extra bucks into your savings account. Working a few hours each week may add up to a nice chunk of cash by the holiday season. Take a weekly shift at the coffee shop, resell on eBay, or rent out your driveway for car storage. All of these could earn you some extra cash for the holidays.
  • Skip those optional purchases. Make your coffee instead of spending $6 a day at the coffee shop. Pack a lunch once or twice a week instead of going out. Bring a snack from home instead of pumping a couple of dollars into a vending machine.
  • Going out with friends? The cost for beer, wine, and mixed drinks can add up fast. A simple trick is to order soda, seltzer water, or tea for every other drink you get. You’ll still have something to sip on, while you save money for your holiday fund at the same time.

Published

November 18, 2022

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