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Which Christmas Savings Account Should You Use?

Make holiday shopping more manageable with a Christmas savings account.

November 21, 2022

For many people, the holiday season is their favorite time of year. For others, seeing how quickly their holiday spending adds up can be very stressful.

Like it or not, people tend to spend a lot of money on their Christmas shopping. The National Retail Federation reports that in 2021, consumers spent an average of $998 on holiday expenses. Most of this budget went to gifts, but almost $350 went to food, decorations and other non-gift purchases.

If you aren’t financially prepared, you’ll probably find yourself putting more charges on your credit card than you can afford to pay off. LendingTree reports that 36% of Americans took on debt during the 2021 holiday season.

The thing is, you don’t have to go into debt for the holidays or other major planned expenses. With a smart savings plan and a Christmas savings account, you can manage the holidays without piling up credit card debt.

Holiday saving strategies

Before you open a Christmas savings account, it’s important to set savings goals and strategies.

Your first step is to determine how much you plan to spend on the holidays and then figure out how much you’ll need to save each week or month to reach that goal. You can do this by looking over your expenses from the previous holiday season to set a budget for this year.

Free online calculators can help you figure out exactly how much you’ll need to save based on your total budget, the months you plan to make deposits and how frequently you’ll be making deposits to your Christmas savings account.

The earlier you can start saving, the easier it will be. For example, if you decide that you’ll spend about $1,000 this Christmas and plan to start saving eight weeks before the holidays, you’d need to save $125 per week to reach that goal. On the other hand, if you started saving eight months before Christmas, you’d only need to save $125 per month — or a little over $30 per week.

You can make setting money aside easy by activating automatic transfers from your checking account to your savings account. This way, you can take a true “set-it-and-forget-it” approach to Christmas savings. 

Just be careful to ensure that automatic transfers don’t cause you to take too much money from your checking account. Some checking accounts require that you maintain a minimum balance to avoid incurring fees. Overdrawing your checking account could also result in fees and penalties.

Understanding your Christmas savings account options

There are several different types of accounts you could use to save for the holidays. By understanding the differences between these common Christmas savings account options, you can decide which will be best for your holiday savings plans.

Savings account

A traditional savings account allows you to earn interest on the balance in your account. Most banks offer free savings accounts as long as you maintain a minimum balance in the account at all times.

Savings account interest rates paid, often referred to as APYs (annual percentage yields), tend to be lower than money market or CD accounts. However, keeping most of your money in a savings account, rather than a checking account, will still allow your savings to grow.

You can also look into opening a high-yield savings account, which is generally available through online banking providers and has a higher interest rate than a traditional savings account.

You may be able to create multiple savings accounts at your bank, labeling different accounts for different purposes — like saving for the holidays or a new car.

Mobile banking means the money in your savings account is available anytime, although you can only withdraw from savings accounts a few times each month. While this can offer some much-needed flexibility to pay off unexpected bills, be careful to avoid overspending and subtracting from your Christmas budget.

Money market account

Money market accounts offer higher interest rates than a traditional savings account — so the money you put in them will grow faster.

Like savings accounts, money market accounts are accessible at any time. It’s easy to transfer money into the account by direct deposit from your bank account or to make withdrawals as needed (though like standard savings accounts, you can only make six withdrawals per month).

However, money market accounts typically have a much higher minimum deposit than other savings accounts. In addition, if your total account balance dips below a certain level, you might be charged a penalty or lose access to the higher-yield interest rate.

Depending on how much you plan to save (and can set aside), you might need to put more money in these accounts than is worthwhile if you only plan to use them to save for Christmas.

Christmas club account

Christmas club accounts are short-term savings accounts specifically designed to help you save for the holidays. The idea of these accounts is that you’ll put money in but can’t touch it until November, ensuring your holiday shopping budget is kept safe.

While a minimum deposit may be required to open a Christmas club account, it’s typically very low. Most Christmas club accounts have a small APY, so while you’ll be able to earn some interest, it won’t be as much as a high-yield savings account.

These accounts frequently come with early withdrawal penalties to encourage you to keep your money in them until the holiday season. Read the disclosures and terms, as they can vary between different financial institutions.

Christmas club savings accounts are generally available through credit unions and small banks, rather than major financial institutions. Qualifying for credit union membership is usually based on where you live or your profession.

Certificate of deposit

A certificate of deposit (CD) is another savings option with interest earnings. In fact, CDs typically have the highest interest payout of any type of savings account.

However, the way you save is a bit different. You make a single deposit (called the principal) when you open the account. This minimum opening deposit is generally much higher than other types of accounts because it’s also the only deposit you’ll make to the CD. The account will then “mature” with compounding interest over a set period (usually six to 12 months).

At the end of the maturation period, you’ll withdraw the money as well as the accrued interest. You can’t access the money before then; you’ll be charged an early withdrawal penalty if you take it out early.

A CD might work for you if you’ve got extra money available to open the account and want it to be someplace where you can’t touch it as it earns interest for the next holiday season. You’ll need to make sure the account “matures” by November so the money will be available for you to use.


Use your Christmas savings account to maximize your holiday budget

The right type of Christmas savings account will ultimately depend on how much flexibility you need as well as how large of an initial deposit you can make. Your holiday saving strategy, including the amount of money you need to set aside for savings and how early you start saving, will also influence which type of account is right for you.

What matters most is that you pick a savings strategy and Christmas savings account that works best for your situation and start saving. The earlier you start, the easier it’ll be when the holiday shopping season rolls around. This way, you can stay out of debt and not have to worry about managing your budget.

If excess credit card debt has made it hard to manage your holiday plans, Tally† may be able to help. By combining your credit card payments into a single lower-interest line of credit, you can pay off your debt more quickly and put more breathing room into your budget.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.