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To get a jump on 2024 holiday spending, saving money with an account that pays maximum interest can supercharge your spending power. If you start saving early and bank strategically, your savings can grow until the moment you're ready to spend it on the perfect gift.
The amount you'll need to save is personal. Different family traditions, distances to travel and more all affect your spending. To start, however, you might consider the National Retail Federation's expectation that consumers will spend an average of $875 on gifts, food, decorations and more in the 2023 holiday season.
There are several solid choices for where you can put your money so it will be accessible to you when you are ready to start shopping—and work hard earning interest in the meantime. Worth checking are high-yield savings accounts, money market accounts and CDs.
1. High-Yield Savings Accounts
High-yield savings accounts typically pay much higher interest rates than regular savings accounts. As of November 2023, interest rates of upward of 4% or even 5% were available. Compare that to traditional savings accounts, which paid an average of under 0.5% as of late November, according to the Federal Deposit Insurance Corp. (FDIC).
With high-yield savings accounts, you may find that you have to have a certain minimum deposit or be limited to a certain number of withdrawals per month. (But if you are saving for holidays, you should be depositing money, not taking it out.)
Here's how saving with an HYSA could play out: If you save $200 a month for 10 months at a 4.5% interest rate, you'll have $2,041.72 at the end of 10 months. Higher savings goals and interest rates can net you even more.
You can use a sinking fund or "bucket" to keep your holiday savings separated from other savings so that you'll have it when you are ready to start shopping.
Pros:
- Interest rates on high end of spectrum
- Easily accessible
- Insured by the FDIC or National Credit Union Administration (NCUA)
Cons:
- Rates not guaranteed to stay at current elevated levels
Find High-Yield Savings Accounts
2. Certificates of Deposit
Certificates of deposit (CDs) can be a good way to make sure any seed money—say, part of a year-end bonus—is squirreled away for holiday spending. CDs differ from savings accounts in that withdrawals made before the CD has reached maturity often come with a penalty. However, you may be able to find one that has a maturity period that suits your needs. If, for example, you deposit a bonus in January, a nine-month CD would mature by October—in time for you to take advantage of interest earnings in time for the holidays. There are also "no-penalty" CDs, but they pay lower interest rates.
Some banks and credit unions have minimum deposits for CDs, but not all do. Again, a little research can pay off.
Pros
- Guaranteed interest rate
- FDIC- or NCUA-insured
Cons
- Penalty if money is withdrawn before maturity date
- Possible minimum deposit
3. Money Market Accounts
Money market accounts typically have limited check-writing and debit transactions, but may pay higher interest rates than traditional savings or checking accounts. Some may have minimum deposits or monthly maintenance fees.
Similar-sounding money market funds are investment products and are not intended to be good short-term, accessible savings accounts.
Pros
- Attractive interest rates
- FDIC- or NCUA-insured
Cons
- May have minimum balance requirements
- Easily accessed if you are tempted to use the money for something else
4. Christmas Club Accounts
This option has declined in popularity, but is still offered by many credit unions and banks. It generally sounds like a better option than it actually is.
The idea is to put away a certain amount of money every month—often from a linked checking or savings account—and to get a deposit of the amount you saved, plus interest, in early November in time for the holidays. The interest amount, though, is not typically competitive with what you'd get with a high-yield savings account, money market account or CD.
Pros
- Automatic transfers
- FDIC- or NCUA-insured
Cons
- Usually non-competitive interest rates
- Possible fees for withdrawals between January and November
It's Not Too Early to Start Saving for the 2024 Holidays
With the memory of 2023's holiday budget and records of amounts spent in mind, you may be wanting to do things differently in the future.
Making a holiday budget now and saving early can help make next year's holiday less stressful and more memorable. You can book travel knowing there is money in the bank and avoid the last-minute cuts and compromises when money runs short.
You can also evaluate which dollars from the 2023 holidays felt like money well spent—which holiday gatherings brought joy and which ones felt like obligations you'd just as soon opt out of next time. That gives you an outline of how—and how much—you'll want to spend as well as some motivation to get started.