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Smart Savings Strategies for the 2024 Holidays

To get a head start on your 2024 holiday spending, consider saving money in an account that offers high interest rates. By starting early and banking strategically, your savings can grow significantly, giving you more spending power when the holidays arrive.

The amount you need to save is personal and depends on various factors such as family traditions and travel distances. According to the National Retail Federation, consumers are expected to spend an average of $875 on gifts, food, decorations, and more during the 2023 holiday season. This can serve as a benchmark for your 2024 savings goals.

1. High-Yield Savings Accounts

High-yield savings accounts typically offer much higher interest rates compared to regular savings accounts. As of November 2023, interest rates of 4% or even 5% were available, compared to traditional savings accounts that paid an average of under 0.5%, according to the Federal Deposit Insurance Corp. (FDIC).

With high-yield savings accounts, you may need a minimum deposit or be limited to a certain number of withdrawals per month. However, if you are saving for the holidays, you should be depositing money, not withdrawing it. For example, saving $200 a month for 10 months at a 4.5% interest rate will yield $2,041.72 at the end of the period. Higher savings goals and interest rates can net you even more.

Consider using a sinking fund or “bucket” to keep your holiday savings separate from other savings, ensuring you have the funds when you are ready to start shopping.

Pros:

• High interest rates
• Easily accessible
• Insured by the FDIC or National Credit Union Administration (NCUA)

Cons:

• Rates not guaranteed to stay at current elevated levels

2. Certificates of Deposit (CDs)

Certificates of deposit (CDs) can be a good way to ensure any seed money, such as part of a year-end bonus, is saved for holiday spending. CDs differ from savings accounts in that early withdrawals often come with a penalty. However, you may find a CD with a maturity period that suits your needs. For example, a nine-month CD opened in January would mature by October, just in time for holiday shopping. There are also “no-penalty” CDs, but they offer lower interest rates.

Some banks and credit unions have minimum deposits for CDs, but not all do. A little research can go a long way.

Pros:

• Guaranteed interest rate
• FDIC- or NCUA-insured

Cons:

• Penalty for early withdrawal
• Possible minimum deposit

3. Money Market Accounts

Money market accounts typically offer 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. Note that money market funds are investment products and are not intended for short-term, accessible savings.

Pros:

• Attractive interest rates
• FDIC- or NCUA-insured

Cons:

• May have minimum balance requirements
• Easily accessed, which may tempt you to use the money for other purposes

4. Christmas Club Accounts

Although less popular, Christmas Club accounts are still offered by many credit unions and banks. These accounts allow you to save a certain amount of money each month, often through automatic transfers from a linked checking or savings account. You receive the amount saved, plus interest, in early November. However, the interest rates are usually not as competitive as those offered by high-yield savings accounts, money market accounts, or CDs.

Pros:

• Automatic transfers
• FDIC- or NCUA-insured

Cons:

• Non-competitive interest rates
• Possible fees for early withdrawals

Start Saving for the 2024 Holidays Now

Reflecting on your 2023 holiday budget and spending can help you plan better for the future. Creating a holiday budget now and starting to save early can make next year’s holiday season less stressful and more enjoyable. You can book travel with confidence, knowing you have the funds, and avoid last-minute compromises when money runs short.

Evaluate which expenses from the 2023 holidays were worthwhile and which ones you could do without. This will help you outline your spending for 2024 and motivate you to start saving.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals with confidence.

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