Holiday Spending: How a High-Yield Saving Account Can Help

The winter holidays have this magical way of sneaking up on many unsuspecting consumers. Even though we see summer ending and fall creeping in, it always seems to catch us off-guard that the holiday season — and all of the spending that comes with it — is just around the corner.

Your family might choose to celebrate Thanksgiving, Christmas, Hanukkah, Kwanzaa, or a combination of these, each of which can be somewhat costly. Whether you’re staying home and planning a quiet holiday break or will embark on a cross-country trek to visit loved ones, here’s a look at how high-yield savings accounts can help you prepare your budget.

The Holiday Season and Spending

According to recent data, more than one in every five Americans goes into debt each year as a result of their holiday spending. This spending starts early for many consumers, too. According to the National Retail Federation, more than 61% of consumers had already begun their 2021 holiday shopping by early November. 

While gifts and other retail purchases make up a large portion of that, they aren’t the only holiday expenses to consider. You may also spend money on things like:

• Travel expenses (flights, trains, rental cars, gas, hotels)

• Food (family meals, restaurant events, meals while traveling)

• Decorations (costumes, ornaments, lights, home decor)

• Gifts (don’t forget the wrapping paper and bags!)

Between Black Friday and Cyber Monday alone, the average American spends over $313 at online or retail store locations. When it comes to the total holiday season, consumers spent an average of $998 each last year, which included $648 on gifts, $231 on things like decor and food, and $118 on things for themselves or miscellaneous holiday expenses.

Of course, depending on your family’s size, location, and even your unique traditions, you could wind up spending even more than that this year. That’s why it’s so important to plan ahead.

How a High-Yield Savings Account Can Help You Prepare for Holiday Spending

While the winter season is closing in quickly, there are still some ways you can spread out the pinch of holiday spending. One tool to consider is a high-yield savings account.

High-yield savings accounts (HYSAs) are exactly what they sound like: depository accounts that offer a higher-than-average rate of return. This ensures that your money is always accessible when you need it, but that it also has the potential to grow as much as possible in the interim.

HYSAs are great when it comes to holiday planning and budgeting for a few different reasons:

• Your funds stay liquid. Putting your money in a certificate of deposit (CD) can net you a higher interest rate, but those funds will be locked away for a specific time period. Putting it in an HYSA instead means adding savings or withdrawing as needed, without any penalty.

• You’ll earn free money! High-yield savings accounts are known for, well, high yields. They tend to offer a bigger APY (annual percentage yield), also known as interest, on the balance held than your typical savings or checking accounts. 

• You can automate your savings efforts. Many banks make it easy to automate your HYSA deposits with scheduled transfers. That way, you can save for upcoming holiday expenses without even thinking about it, by scheduling weekly, biweekly, or monthly transfers when you get paid.

Credit cards can also be a great tool, sometimes earning you rewards or cash back on the things you buy and providing you with many consumer protections. However, many people find themselves in credit card debt come January, which can be costly with interest rates often in the double digits.

With a high-yield savings account, you can have the best of both worlds.

One strategy is to use a credit card for your purchases and then an HYSA to pay them off. Simply:

• Spend with your credit card of choice, even earning cash back rewards, miles, or points on your purchases.

• Transfer the purchase amount into an HYSA as soon as you buy. So, if you spent $200 on your credit card during a Black Friday sale, immediately move that money from your checking account into your high-yield savings account. (This keeps you from inadvertently spending that money.)

Pay off your credit card bill with the HYSA funds. Once you receive your credit card statement, pay off those charges with the money you’ve already set aside. Your savings have had the chance to earn interest, you’ll avoid finance charges on your credit card if you pay the balance in full, and you’ll still earn any rewards offered by your credit card issuer. Wins all around!

Get Ahead of Next Year

With the holiday season just around the corner, you may be limited in your savings efforts for this year. By opening an HYSA, however, you can start planning for next year, too.

Schedule automatic transfers on a regular basis, such as every payday. For example, if you spend about $800 on the holidays on average, putting aside less than $20 a week from January to December 15 will get you there (with a lot less pinch). 

You can also tuck money into your HYSA whenever you get extra cash, make some money with a side hustle, or earn cash back from a credit card. This will amplify your efforts and earn you more money in the process.

By the time the next holiday season rolls around, you could have the cash you need for gifts, travel, decor, and more… plus a little extra in the form of interest!