Why you should open a holiday savings account

While the hustle and bustle of the holiday shopping season normally begins around Black Friday and Cyber Monday, things are getting started a little early this year.

But don’t worry, there’s still time to plan. If you haven’t already, take a look at your budget in the months leading up to December so you can decide how much you want to spend on gifts, travel and more. If you don’t, your January credit card bill may catch you by surprise, with a big holiday debt hangover in the new year.

“Your first step is identifying what your spending budget is going to be for the holidays, says Donna Medina, financial wellness relationship manager at Regions Bank. Medina recommends making a list of people you’re buying gifts for, plus other costs like greeting cards, decorations, travel, lodging, food, and various tips you might want to pay housekeepers, doormen, pet sitters, etc.

Regions Bank, like many financial institutions, has a budget worksheet, or you can simply make your own using Excel or Google sheets, or even old fashioned pen and paper.

Once you decide on a holiday budget, it’s time to start saving. “I would recommend opening a second savings account dedicated to holiday needs,” Medina says.

Below, Select spoke with Medina about setting up a holiday savings account and how to prime your finances for the giving season and beyond.

Some banks and credit unions offer special low-fee savings accounts for year-round savers to set aside holiday gift money. Sometimes, they’re offered during limited-time windows throughout the year, which varies by institution. Some holiday savings accounts come with helpful perks, such as automatic savings deposits and the option to pick an annual disbursement date to receive the cash you saved up all year.

See Here for Presidents Holiday and Vacation Accounts.

However, a holiday savings account can be any kind of separate savings account that you open in addition to your emergency fund. When you put that extra cash into a high-yield savings account, you can earn more than 10 times the interest you would on a traditional savings.

Having a holiday savings account is important so you’re not tempted to dip into your emergency fund. Most experts recommend having at least three months’ worth of savings put aside for a rainy day, and as the coronavirus pandemic drags on, it shows how important it is to have that safety net.

“Really six months is an updated recommendation, especially as a result of the Covid-19 outbreak,” says Medina.

Building up an emergency account is easier said than done: According to the most recent installment of Clever’s Covid-19 Financial Impact Series, over half (61%) of Americans will run out of emergency savings by the end of 2020, or they already have.

If you do have an emergency savings account, it’s important not to dip into it when you need extra cash — especially around the holidays. By creating a separate savings account, you can make a clear plan to meet both goals, whether that’s cutting expenses or taking on a side hustle or both.