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The holidays are coming up. Are you ready?
If you’re like most Americans, you’re probably not thinking about the cost of gifts just yet. But once January rolls around and the decorations are put away, the reality of those costs might greet you like a bad hangover.
Many consumers will pay interest on their holiday purchases for months or years to come.
Even worse, maybe you don’t yet have an emergency fund set aside to protect you from next year’s inevitable financial roadblocks and hiccups.
One of the best presents you can give yourself is your own money. Start saving now. That way, you can pay for holiday expenses, earn money on your savings and go into the New Year financially prepared.
Here’s a solid strategy to help you save for the holidays we know will show up every year, and grow your emergency fund. By this time next year, you could have all the cash you need for gifts and a fully-stocked emergency fund.
What’s the Best Way to Save for the Holidays Next Year?
First, you need a target savings goal. This is how much you want to have saved up to spend on next year’s holiday.
You can reach this number a couple of different ways. You can tally up what you spend on the holidays this year and use that number as your target savings goal for next year. You can also just pick a number.
Once you have a target savings goal in mind, divide that number by 11. Why 11? If you save a little bit of money once a month starting in January, that gives you 11 months of steady savings to build up a fully-funded holiday savings fund.
For example, my husband and I started saving $45.45 each month starting in January. Now that it’s December, we’ve reached our target savings goal of $500. Next comes the fun part: spending it on holiday gifts!
What’s the Best Way to Save Up an Emergency Fund?
Again, choose a target savings goal. If you have no emergency fund at all, set your first target at $500.
Once you hit that target, start working on the next $500.
After you have saved $1,000, your next target should be three months’ expenses. That means the amount of money you would need if you had no income for three months.
Include rent/mortgage, utilities (including cell phone and Internet service), groceries, gas, insurance and any other regular bills. This is a no-frills budget to cover basic expenses in case something drastic happens.
If you live with another working adult, three months’ worth of expenses is a good foundation (it’s not likely that both of you will lose your incomes simultaneously, so at least you’ll have one person’s income in the event of an emergency).
The best emergency fund, however, is enough to last six to twelve months with no income. The more you earn, the more months you should have in reserve.
Once you’ve set your target, simply set divide it by 11 and set aside that amount every month. If you can save more, you’ll reach your target faster. Make it a game to challenge yourself: can you save more each month as time goes by?
CIT Bank: The Best Place to Park Your Savings
These savings strategies will help you save, but you can really jump start your savings if you keep it in a high-yield account.
CIT Bank is an excellent example. They’ve been around since 1908, so you know they’re doing something right.
CIT is FDIC-insured, so you have zero risk of losing your money (up to $250,000—that’s one heck of a savings goal to shoot for).
CIT Bank charges no monthly maintenance fees and is known for great customer service. Furthermore, it offers some of the highest interest rates on savings accounts and CDs from any bank, period.
CIT Bank’s Savings Builder Account
A high-yield savings account is definitely the way to go. CIT Bank’s Savings Builder Account offers some of the top rates in the industry, at 2.25% percent APY.
Many banks pay just 0.10 percent. A high-yield savings account will give you a much greater return on your savings. You could earn measurable interest, not just a few pennies.
You need to know a couple of things before you open up a Savings Builder Account with CIT Bank. The minimum deposit required to open the account is $100. Also, with any savings account you’re limited to six withdrawals per month. The number of deposits is not limited.
CIT Bank’s 11-Month Penalty-Free CD
What if you’ve already met your target savings goal and you want to stash it someplace where it will grow even more? Consider opening a CD (certificate of deposit) account because you can earn even higher rates.
CIT Bank’s 11-month, penalty-free CD is a great option, especially for holiday savings. With this CD, you’ll make an initial cash deposit and let it sit for the next 11 months while it earns interest. As of November 2018, CIT Bank offers 2.05% APY on this product which is currently one of the highest in the market.
Most CDs charge an early-withdrawal penalty if you need to take the cash out early for some reason. For an 11-month CD, a typical fee is three months’ interest.
CIT Bank’s penalty-free CD works a little bit differently: after an initial seven-day hold (as per federal regulations), you can take your money out – including all earned interest – at any time without a fee.
How Much Can Jump Starting Your Holiday Savings Help You?
Let’s say you want to spend $1,000 (or more) on the holidays next year. You have three options:
- Go into credit card debt. If your credit card charges a 17% APR interest rate and you make minimum payments only, it’ll take you about 60 months (five years) to pay off your balance. You’ll also pay $486 in interest—almost half of what you spent in the first place.
- Use a savings account. If you deposit a starting amount of $100 and set aside $81.82 per month for the next 11 months, you’ll have $1,000.02 at the end of a year. This is without calculating any interest you would earn by using a savings account!
- Use a CD. If you put $1,000 into a CIT Bank 11-month, penalty-free CD you’ll have $1,018.78 at the end of a year.
Which one would you choose?