A dedicated savings account: The key to stress-free holiday spending

1. What is a holiday savings account, and how can it help you budget?

A holiday savings account (sometimes referred to as a Christmas savings account or vacation savings account) is a type of dedicated savings account designed to help individuals set aside money throughout the year for holiday expenses. While some financial institutions offer holiday savings accounts with special features, you can achieve the same benefits by using a standard savings account dedicated specifically for holiday expenses. While this article focuses on using a standard savings account as a place to save for holiday expenses, you can also apply this methodology to save for any other major life expenses like emergency savings or a dream trip.

Key benefits of a dedicated holiday savings fund:

Whether you have access to a Holiday Savings Account or simply set up a separate savings account, the goal is the same—to create a fund dedicated solely to holiday expenses. This savings approach can help you:

• Avoid relying on credit cards or emergency savings for holiday shopping.
• Track holiday savings separately to maintain better control of your finances.
• Build a habit of consistent saving towards set goals through automated transfers.

2. Why a dedicated savings account is the smartest way to save for the holidays

Setting up a dedicated savings account for holiday expenses offers several different advantages that can make the holiday season easier to navigate and less financially stressful. The primary benefits of a dedicated savings account include:

Avoid holiday debt: Save smart & stay financially secure

The holidays can be costly, and without a savings plan, many people are forced to rely on credit cards. Gradually setting aside money throughout the year within a dedicated standard savings account can help cover all holiday expenses while simultaneously preventing the need to resort to high-interest credit cards. According to a survey conducted by LendingTree, 34% of Americans went into debt during the 2023 holiday season, with the average holiday debt totaling $1,028. Saving in advance helps you avoid this common pitfall, ultimately allowing you to focus on the parts of the holiday that truly matter.

How your savings can grow: Understanding interest on holiday funds

Many standard savings accounts offer interest, allowing your holiday funds to gradually grow over time. Although these rates are generally modest, typically ranging from 0.25% to 4.0%, even a small amount of interest can add up. To learn more about how interest may play a role in your holiday savings plan, review Investopedia’s article on How Interest Works on a Savings Account.

Make saving a habit: How a dedicated account keeps you on track

Automating your contributions to a dedicated savings account can help you develop the habit of regular saving, in turn positively impacting your overall financial health. Consistent saving habits are typically associated with reduced financial stress and improved mental well-being, ultimately helping to improve your day-to-day life as well as ensure you have money available when you need it.

Budget smarter: How planning ahead saves you money

Planning your holiday savings, or savings for another purpose (i.e. emergency fund, dream trip, kid’s braces, etc.), requires estimating expenses and setting a budget. Setting a savings goal and contributing regularly can help refine your budgeting skills, in turn positively impacting other areas of personal finance. Budgeting for holiday expenses or any other expenses, requires forethought and planning, ultimately encouraging more intentional spending and effective saving throughout the year.

3. How much should you save for holiday expenses? A step-by-step guide

The key to successful holiday saving is determining how much you need and creating a plan to reach that goal. To effectively set up your dedicated savings account, start by estimating your holiday expenses (or other relevant expenses). Creating a realistic holiday budget can help you plan for how much you need to set aside on a regular basis (i.e. from your bi-weekly paychecks), as well as define a clear savings goal. When calculating your savings goal, make sure to:

Step 1: Calculate your holiday expenses (without guesswork)

Start out by listing your common holiday expenses, such as:

• Gifts for family, friends and coworkers
• Decorations for your home or any holiday events
• Travel costs (including transportation and lodging)
• Meals for holiday gatherings
• Entertainment for seasonal activities or gatherings

When determining expenses to set your holiday budget against, start by reviewing last year’s holiday spending for help estimating. Make sure to factor in any major life changes, like having a new child, to create to most accurate holiday budget.

Step 2. Break your holiday budget into manageable pieces

Once you’ve listed out all expenses, the next step is to set a budget for each category. For example, you may allocate around $500 for gifts, $100 for decorations, $300 for travel and $150 for meals. Total these amounts to find your savings goal. If your budget is $1,000, then your savings goal will also be $1,000.

Step 3. Find your ideal savings plan (monthly vs. weekly)

Next, divide your savings goal by number of months or weeks remaining until the holiday season to create your savings goals. For example, starting in January you would need around $84 per month or $20 a week to reach an $1,000 savings goal by December. Adjust your contributions as needed to ensure that you stay on track with your holiday savings goal.

Check out NerdWallet’s article on building a holiday budget that works every year for further insights to crafting your own holiday budget.

Note: While this article focuses on the application of a dedicated savings account for holiday expenses, these principles can be applied to save for any other major life expense.

4. Holiday savings mistakes that can cost you: What to watch out for

To ensure that you make the most of your dedicated holiday savings account and reach your holiday savings goals, be wary of these common pitfalls:

Mistake #1: Waiting too long to start saving

The earlier you can start saving, the smaller you can keep your contributions. Waiting until the last minute not only makes it challenging to reach your holiday savings goal, but it can also nullify most of the benefits (like earning interest) that come along with a savings account.

Mistake #2: Not following your holiday budget

Establishing a budget is only effective if you can stick to it. Straying too far from the budget when you begin your holiday shopping can put a strain on your finances, leading to unnecessary stress and last-minute planning.

Mistake #3: Spending your savings before the holidays

It is imperative to avoid withdrawing funds from your dedicated holiday or vacation savings accounts until you’re ready for holiday expenses. Dipping into your funds too early may prevent you from reaching your savings goals, leaving you with less money than anticipated for the coming holiday season.

Mistake #4: Missing out on interest that grows your savings

Accounts that offer interest, such as an online savings or money market account, are generally the best way to maximize your savings. Even a small bit of interest can begin to add up, providing you with additional money to put towards holiday expenses. To learn more about the different savings account types offered at Associated Bank, as well as the various features associated with each savings account, review our page on individual savings accounts.

5. Take action now: Start your holiday savings plan today

Creating a dedicated savings fund for holiday expenses—or any major financial goal—can transform the way you budget. Setting aside money consistently ensures you’re financially prepared to enjoy the holiday season without stress or debt. A well-planned savings strategy promotes smart spending, disciplined saving and thoughtful planning, allowing you to focus on what truly matters during the holidays or while traveling

Start saving for the holidays with a dedicated standard savings account and enjoy a more stress-free holiday season. Remember, the key to successful holiday savings is starting early, budgeting carefully and sticking to your savings plan.