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Why you should open a holiday savings account that's separate from your emergency fund

Select spoke with Regions financial wellness manager Donna Medina about why you should have a separate savings fund for holiday spending.

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Terms apply to American Express benefits and offers. Visit americanexpress.com to learn more.

While the hustle and bustle of the holiday shopping season normally begins around Black Friday and Cyber Monday, things are getting started a little early this year.

But don't worry, there's still time to plan. If you haven't already, take a look at your budget in the months leading up to December so you can decide how much you want to spend on gifts, travel and more. If you don't, your January credit card bill may catch you by surprise, with a big holiday debt hangover in the new year.

"Your first step is identifying what your spending budget is going to be for the holidays, says Donna Medina, financial wellness relationship manager at Regions Bank. Medina recommends making a list of people you're buying gifts for, plus other costs like greeting cards, decorations, travel, lodging, food, and various tips you might want to pay housekeepers, doormen, pet sitters, etc.

Regions Bank, like many financial institutions, has a budget worksheet, or you can simply make your own using Excel or Google sheets, or even old fashioned pen and paper.

Once you decide on a holiday budget, it's time to start saving. "I would recommend opening a second savings account dedicated to holiday needs," Medina says.

Below, Select spoke with Medina about setting up a holiday savings account and how to prime your finances for the giving season and beyond.

What is a holiday savings account?

Some banks and credit unions offer special low-fee savings accounts for year-round savers to set aside holiday gift money. Sometimes, they're offered during limited-time windows throughout the year, which varies by institution. Some holiday savings accounts come with helpful perks, such as automatic savings deposits and the option to pick an annual disbursement date to receive the cash you saved up all year.

For instance, the holiday savings account at 1st Source Bank lets clients set up automatic transfers from their checking account on a weekly, monthly or bi-weekly basis. Every October, clients receive a paper check or electronic deposit in the amount of their yearly savings, plus interest.

However, a holiday savings account can be any kind of separate savings account that you open in addition to your emergency fund. When you put that extra cash into a high-yield savings account, you can earn more than 10 times the interest you would on a traditional savings.

Learn more: Consider these 4 important factors when choosing the best high-yield savings account for your money

Why it makes sense to open a dedicated holiday savings account

Having a holiday savings account is important so you're not tempted to dip into your emergency fund. Most experts recommend having at least three months' worth of savings put aside for a rainy day, and as the coronavirus pandemic drags on, it shows how important it is to have that safety net.

"Really six months is an updated recommendation, especially as a result of the Covid-19 outbreak," says Medina.

Building up an emergency account is easier said than done: According to the most recent installment of Clever's Covid-19 Financial Impact Series, over half (61%) of Americans will run out of emergency savings by the end of 2020, or they already have.

If you do have an emergency savings account, it's important not to dip into it when you need extra cash — especially around the holidays. By creating a separate savings account, you can make a clear plan to meet both goals, whether that's cutting expenses or taking on a side hustle or both.

The Ally Online Savings Account lets account holders organize their savings all in one place by creating up to 10 different "buckets" inside the same account. Think of nicknames that work for you, such as "holiday gifts," "travel" and "emergency fund." These buckets make it easy to separate your emergency fund from your holiday cash without opening a whole separate account. If you link your Ally savings account with an Ally Bank Spending Account (Ally's checking product), transferring money is easy and fast.

Ally Bank Savings Account

Ally Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.25% APY

  • Minimum balance


  • Monthly fee


  • Maximum transactions

    Unlimited withdrawals or transfers per statement cycle

  • Excessive transactions fee

    $10 per transaction

  • Overdraft fee


  • Offer checking account?


  • Offer ATM card?

    Yes, if have an Ally checking account

  • Terms apply.

Tips to grow your holiday savings year round

With less than two months left until December, and less than three until the new year, it's not too late to start saving for the holiday season now. Make saving easier by looking for deals and tracking major sales.

You might even want to look for a seasonal job or side hustle to earn a little extra cash to cushion your spending, says Medina.

There's another way you can pay for holiday expenses: your credit card rewards: "Boost your savings account with credit card rewards," says Medina. When you have a good cash-back credit card, you can cash in your rewards for statement credits to cover the gift shopping you've done with your card.

One way is to link a cash-back card to your savings account. Set up an automatic redemption linked directly to your account so that your rewards go directly into your savings. Medina recommends linking your cash-back rewards card to a secondary savings account, such as your holiday account, so you can passively grow your savings all year as you regularly use your card for everyday spending.

Both the Capital One Quicksilver Cash Rewards Credit Card (requires excellent credit; see rates and fees) and the Capital One QuicksilverOne Cash Rewards Credit Card (more suitable for average credit; see rates and fees) allow cardholders to schedule automatic cash-back redemption to a linked bank account once you hit a specific earnings threshold ($25 and up). The same goes for the *Capital One Savor Cash Rewards Credit Card (requires excellent credit).

If you're looking for a quick savings boost, consider opening a card with a generous welcome bonus. Right now, new cardholders signing up for a Blue Cash Preferred® Card from American Express can take advantage of earning a $250 statement credit after you spend $3,000 in purchases on your new card within the first six months.

This deal is a good one if you feel confident you can pay off your balance on time and in full. Cash-back cards are a smart way to save a little money if you use them wisely.

Blue Cash Preferred® Card from American Express

On the American Express secure site
  • Rewards

    6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%), 6% cash back on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations, 3% cash back on transit (including taxis/rideshare, parking, tolls, trains, buses and more) and 1% cash back on other purchases. Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.

  • Welcome bonus

    Earn a $250 statement credit after you spend $3,000 in purchases on your new card within the first 6 months. 

  • Annual fee

    $0 intro annual fee for the first year, then $95.

  • Intro APR

    0% for 12 months on purchases from the date of account opening

  • Regular APR

    19.24% - 29.99% variable. Variable APRs will not exceed 29.99%.

  • Balance transfer fee

    Either $5 or 3% of the amount of each transfer, whichever is greater.

  • Foreign transaction fee


  • Credit needed


See rates and fees, terms apply.


Don't miss: The Amazon Prime Visa gift card bonus is now $100—just in time for Prime Day in October

*Information about the Ally Bank Spending Account, Ally Online Savings and Capital One Savor Cash Rewards Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

For rates and fees of the Blue Cash Preferred® Card from American Express, click here.

Ally Bank is a Member FDIC.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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