It’s always a good time to save for the holidays, and if you’ve heard of holiday savings accounts or Christmas Club accounts, you may have considered opening one. After all, the holidays can be expensive, so it’s a good idea to squirrel away a few extra dollars. Earmarking funds for the holidays can help you avoid dipping into your emergency savings or running up your credit card bills.
Like most financial products, these accounts have their share of pros and cons. We’ll cover everything you need to know about holiday savings accounts to help you decide if these accounts are right for you. While they will appeal to some savers, there are also other options to consider.
A holiday savings account is a special type of savings account designed to help people set aside money throughout the year for holiday expenses — such as gifts, travel, and events — so they don’t have to rely on credit cards or dip into emergency funds come December.
For the most part, holiday savings are similar to other traditional savings accounts. However, some banks and credit unions may offer these accounts at certain times of the year, and restrict withdrawals until a set date (often October or November) to discourage early spending. They might also have lower fees or higher interest rates than standard savings accounts.
The important part is that they are separate from other savings funds, such as the one that holds your emergency savings. This allows you to separate your holiday savings from other savings buckets until the holidays draw near.
Pros and cons of holiday savings accounts
The biggest advantage of a dedicated holiday savings account is that it helps you get your budget right. Instead of “just winging it” and hoping you have enough cash, it lets you set a holiday budget ahead of time and plan your spending accordingly.
These accounts can also earn interest, and some might earn an above-average rate. Depending on the yield, this can help you fight inflation with the money in your holiday savings account.
That said, this type of account is very niche. You may be better off putting your funds in a high-yield savings account (HYSA), which can often earn much more.
Holiday savings accounts also limit what you can do with your money. Having money reserved for holiday spending is nice, but sometimes, priorities change. If this happens, you may need to move money out of your holiday savings account, defeating the purpose of having the account in the first place. Plus, early withdrawals may incur penalties.
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Opening a holiday savings account generally follows a similar process to opening a standard savings account.
Start by researching available accounts, comparing options from banks, credit unions, and online financial institutions. If possible, look for accounts that offer competitive interest rates, as well as low or no fees and low minimum balance requirements.
Once you have settled on the account you want to open, you can typically complete an application online. Fill in the required information, which typically includes your name, address, and Social Security number.
After submitting the form, your account will usually be approved right away. You may also have to make an initial deposit when opening the account. If the account supports automatic deposits, you can set them up to help build your account balance over time.
Although holiday and Christmas club accounts are less common today, there are still several financial institutions that offer them. Here are a few examples of banks and credit unions with holiday accounts;
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American Bank & Trust: This bank’s Christmas Club Savings account requires a $10 minimum deposit, with no monthly fee and no deadline to open. Funds are paid out annually in October; a $20 penalty will be assessed and your accrued interest will be lost if you close your account before maturity.
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American First Credit Union: The Holiday Club account requires just $5 to open and earns a higher interest rate than regular share savings accounts. Funds are available for withdrawal between Nov. 1 and Dec. 31; there is a $10 fee if you make a withdrawal outside this window.
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Fidelity Bank & Trust: The Fidelity Christmas Club account is available to open any day of the year with a $25 minimum deposit and maximum deposit of $5,000. There is also a maximum balance of $15,000. Funds are disbursed in October.
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First National Bank: The Christmas Club account from First National Bank has a $20 minimum opening deposit requirement. The annual club payment is issued after October 31 (deposits made between Nov. 1 and Dec. 31 are held in the account until the next year). There is a $5 fee for each early withdrawal.
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F&M Bank: This Christmas club account requires just $10 to open and has no monthly fees or minimum balance requirements. Funds are disbursed in October and there is a penalty for early withdrawals.
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Old National Bank: The Christmas Savings Club account from Old National Bank requires a $50 minimum opening deposit. Interest rates are tiered based on your balance. There’s no minimum balance requirement or monthly maintenance fee.
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Solano First Federal Credit Union: This Christmas Club account has no minimum initial balance requirement. In mid-November, your funds are transferred to your regular share savings account.
There are several alternatives to holiday savings accounts, each with pros and cons. However, one of the alternatives might be a better choice, depending on the situation. Here are a few other options to consider:
Generally available at your existing bank or credit union, you can easily transfer money from your checking account. However, yields are often low.
Typically available from online banks, these accounts have higher yields than standard savings accounts. Additionally, you may be able to set up a holiday savings bucket. However, you often can’t transfer money as seamlessly from your checking account if your savings account isn’t with the same bank or credit union.
These accounts often have higher yields than standard savings accounts. You may also be able to get a debit card for easy access to your funds. However, money market accounts often have higher minimum balance requirements and restrict the number of withdrawals you can make per month.
Read more: The 10 best high-yield money market accounts available today
CDs have fixed interest rates that can be higher than savings accounts; the best CD rates on the market today earn upwards of 4% APY. Plus, rates are fixed for the entire term, which can be useful for holiday savings since you know approximately when you will need the money. However, there are usually penalties for early withdrawals, which can be a problem if you need the money sooner.
There is no shortage of possible alternatives to holiday savings accounts. As mentioned, each type of account has pros and cons, and none will be the best choice in every situation.
Still, consider why you need the account and whether a holiday savings account is best. If you find another type of account is a better fit, it may be best to go with it, even if it isn’t specifically designated for holiday savings.
