For many families, the end of December is a time to breathe a big sigh of relief. With no more holiday shopping, winter vacations or festive events, it’s finally possible to return to a normal monthly budget. But, before you forget about the financial strain of the holiday season—why not plan ahead by starting a holiday savings account for next December?
Starting a new, single-purpose account is a smart way to gradually save for one specific purpose. Some people have a vacation savings account, a house savings account, or a college savings account. With a holiday savings account, you can plan ahead for the most expensive months of the year.
While it’s certainly possible to keep all your savings in one place, separate accounts can simplify the savings process and help you track your savings goals more closely.
Look for a savings option that earns interest and doesn’t charge a hefty start-up fee. Some financial institutions also offer single-purpose savings accounts specifically designed for these needs. Harvard FCU’s Club Savings Account, for example is designed to help save for specific expenses.
Depending on your time frame and current savings, another option is to open a short-term CD, to earn a higher interest rate on your savings. However, CDs typically require an initial opening balance of at least $1,000 to get the best rates. Also, because CDs are fixed, they can’t be added to or built out gradually over the year—making a single-purpose savings account a more convenient option for many holiday savers.
Opening a holiday savings account is the easy part—putting money into that account is where things might get tricky. The good news is that if you open a holiday savings account now, you’ll have many, many months to save for next year’s festivities. Use a budgeting app to evaluate your household expenses and see where it might be possible to trim the fat. Can you cancel a subscription? Reduce dining-out expenses by making lunch at home? Setting aside, twenty, fifty or one hundred dollars per month could make a big difference when next year’s holiday season comes around.
Another option to fund your holiday savings account is with automatic payroll deductions. In other words, you can arrange for a certain amount of money to be automatically transferred from your paycheck into your single-purpose savings account each month. The benefit of automatic payroll deductions is that you won’t be tempted to spend the cash before it’s in your account.
Of course, the most important aspect of managing a holiday savings account is that you can’t touch the money until it’s time to start shopping for the holidays. This task will be made simpler if you already have an emergency fund that you can dip into if a serious financial need arises. On the other hand, some single-purpose accounts hold onto the money for you until a specific deadline is reached. For example, people with a Harvard FCU Holiday Club Savings Account receive a one-time automatic transfer to their regular savings account on November 1st. After that, savers are already enrolled to start saving again next year.