Should You Open a Holiday Savings Account This Year?

There's a lot to love about the holidays, but the extra costs they bring doesn't make the list. A lot of people feel the strain as they try to make room for gifts, holiday meals, and travel costs on top of their regular monthly bills.

It's possible to budget for these things on your own, but if you need a little help, you might consider a holiday savings account, also known as a Christmas Club account. Here's what you need to know about them.

What are holiday savings accounts?

Holiday savings accounts are bank accounts that help people save money for holiday expenses. They used to be pretty popular, though they've become less so in recent years. Now you'll usually only find them with smaller banks and credit unions.

These accounts often enable you to set up automatic transfers from your main checking account to the holiday savings account. You can choose how much you'd like to defer each time. The money remains there, earning a small amount of interest, until a certain date -- usually Nov. 1 -- when the bank releases the funds back to you. You can then put them toward any costs you like, including holiday travel expenses, food, or gifts.

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If you attempt to withdraw money from a holiday savings account before the release date, you could face penalties or lose the interest you've earned. That could be problematic for those who like to do their shopping early. But some people might like having their money out of reach until then to discourage them from spending it on other things.

How do you open a holiday savings account?

The first step in opening a holiday savings account is finding one. Check with local banks and credit unions in your area to see if any of them offer something like this. Then, inquire about its terms to make sure you're comfortable with them. Things you want to ask about include:

• Initial deposit requirements
• How you can deposit funds into the account
• Maintenance fees
• Early withdrawal fees
• When you get access to your funds again

Once you've found an account you like, it's pretty much the same as opening any other bank account. You'll need to provide the bank with your ID, address, and other personal information. Then, when you're all set up, you can fund the account.

What are the alternatives to a holiday savings account?

A high-yield savings account is a great alternative to a holiday savings account if you're not comfortable losing access to your funds or you can't find a holiday savings account you like. High-yield savings accounts are typically available through online banks and most don't have monthly maintenance fees or minimum balance requirements.

As their name implies, it's possible to earn interest more quickly with a high-yield savings account than it is with a holiday savings account. Some of the best high-yield savings accounts currently have annual percentage yields (APYs) of 4.30% or higher. Many holiday savings accounts, on the other hand, have APYs of 0.25% or less.

Some high-yield savings accounts also enable you to set up virtual envelopes where you can earmark money for specific goals, like holiday expenses. This might be a little easier for you to manage rather than a separate savings account at a different bank.

But there's nothing wrong with giving holiday savings accounts a shot if you're interested in them. Just make sure you understand how yours works so you don't run into any unpleasant surprises.