3 ways to save money for next holiday season

The holidays are an expensive time of year, as there are numerous expenses that can sneak up on you in December, like travel costs, buying gifts or purchasing decorations. There is a way, though, to make it through December with your pocketbook relatively unscathed: Start saving for next year now. 

And, there are a lot of savings products out there that you can use for holiday savings. With the right combination of actions, you can be ready for all the extra expenses that might come your way next year.

Start saving for the holidays with a high-yield savings account.

3 ways to save money for next holiday season

If you want to be prepared for the next holiday season's expenses, the key is to start planning early. Here are a few techniques you can use to have extra cash on hand when it's time to exchange gifts in 2024.

Use a high-yield savings account

You may already have a high-yield savings account where you keep the money you don't need access to on a daily basis. If not, now is the time to change that. If you have significant cash assets sitting in a checking account, that money is doing nothing for you. It sits idle, losing purchasing power to inflation every day.

A high-yield savings account, on the other hand, pays interest — and right now that interest is pretty significant. You can currently get rates of more than 5% with some high-yield savings accounts, especially if you look for an option from an online-only financial institution. These online banks can offer higher rates than traditional banks, as they don't have the overhead that goes with brick-and-mortar locations.

High-yield savings accounts have especially high interest rates because the Federal Reserve has repeatedly raised the federal funds rate over the past 18 months in an effort to fight inflation. While the federal funds rate is different from the rates offered on consumer sayings products, "they are kind of sisters or cousins," says Nick Covyeau, a financial advisor at Swell Financial. In other words, when the federal funds rate goes up, interest rates for high-yield savings accounts go up as well. 

For example, let's say you open a high-yield savings account today with a rate of 5%. That rate might change over the next year, but because we don't know how the rate could change, using a constant rate will help us predict how much you could earn. If you put $5,000 into the account on December 1 and put a further $100 in each month, your account value on December 1, 2024, will be $6,450.00, with $250 earned in interest. The interest alone could be enough to pay for some gifts or travel costs.

Open a high-yield savings account today to save for the holidays and beyond.

Use a certificate of deposit

Another option for savings is to use a certificate of deposit (CD). A CD is another type of savings product where rates are high right now. As of November 2023, you can get a rate of more than 5% on a 1-year CD.

With a CD, you put money into the account and it sits earning interest during the CD term. That said, you can't take out the money early, generally, unless you want to pay a significant early withdrawal fee. Make sure, then, that the money you put into a CD is money you won't need access to before next holidays.

If you put $1,500 into a 1-year CD right now with an interest rate of 5.66%, you'd end up earning $85 in interest. That may not be enough to buy a plane ticket to Paris, but every dollar counts. 

And, unlike a high-yield savings account, the rate you get when you open a CD is the rate you'll have for the entire term. Covyeau suggests opening CD accounts now in order to lock in those current high rates.

Use a budget plan

This tip is the simplest of all — but it might be the hardest. If you want more money to spend over the holidays, the best thing you can do might be to simply spend less during the year. 

This is, of course, easier said than done. Life is expensive, but making a budget plan and sticking to it can actually make you more comfortable spending the money you want when the holidays do come around. Some possible changes include eating out less often, spending less on entertainment and making your own coffee. 

The bottom line

The holidays are stressful for a lot of reasons, but money doesn't have to be one of them. A bit of careful planning now – along with using savings vehicles like high-yield savings accounts or certificates of deposit – could let you enjoy the next holiday season without worrying about going bankrupt.