It’s always a good time to save for the holidays, and if you’ve heard of holiday savings accounts or Christmas Club accounts, you may have considered opening one. After all, the holidays can be expensive, so it’s a good idea to squirrel away a few extra dollars. Earmarking funds for the holidays can help you avoid dipping into your emergency savings or running up your credit card bills.

Like most financial products, these accounts have their share of pros and cons. We’ll cover everything you need to know about holiday savings accounts to help you decide if these accounts are right for you. While they will appeal to some savers, there are also other options to consider.

What is a holiday savings account, and how does it work?

Holiday savings accounts are separate from your checking account, meaning you won’t use them for everyday spending. For the most part, they are similar to other traditional savings accounts. However, some banks and credit unions may offer these accounts at certain times of the year and advertise them as holiday savings accounts. They might also have lower fees or higher annual percentage yields (APYs) than their other savings accounts.

The important part is that they are separate from other savings funds, such as the one that holds your emergency savings. This allows you to separate your holiday savings from other savings buckets until the holidays draw near.

Like most savings accounts, a holiday savings account lets you transfer money using a linked bank account or wire transfer. Some holiday savings accounts might let you set up recurring automatic transfers so you can build your savings over time.

Keep in mind that some holiday savings accounts might have minimum balance requirements or a monthly maintenance fee. Some may also limit monthly withdrawals. This is important to remember, especially as the holidays draw near, as you might make frequent purchases. You may need to move money into your checking account a few times monthly rather than every time you spend.

Pros and cons of a dedicated holiday savings account

The biggest pro of a dedicated holiday savings account is that it helps you get your budget right. Instead of “just winging it” and hoping you have enough cash, it lets you limit what you can spend during the holidays. Plus, you can avoid using your emergency savings and, hopefully, getting into credit card debt.

These accounts can also earn interest, and some might earn a high yield. Depending on the yield, this can help you fight inflation with the money in your holiday savings account.

Although holiday savings accounts can have high yields, this account is very niche. You may not consider the best high-yield savings accounts, which can often earn much more. Some of these accounts have a bucket feature, enabling you to create your holiday savings bucket.

Holiday savings accounts also limit what you can do with your money. Having money reserved for holiday spending is nice, but sometimes, priorities change. If this happens, you may need to move money out of your holiday savings account, defeating the purpose of having the account in the first place.

How to open a holiday savings account

Opening a holiday savings account generally follows a similar process to opening a standard savings account.

Start by researching and comparing available accounts. The main distinction is you will be looking for holiday savings accounts specifically. Check whether banks, credit unions, or other financial institutions currently offer these accounts. If possible, look for accounts that offer competitive interest rates. Also, look for accounts with low or no fees and low minimum balance requirements.

Once you have settled on the account you want to open, you can typically complete an application online. Fill in the required information, such as your name, address, and Social Security number. After submitting the form, your account will usually be open right away. You may also have to make an initial deposit when opening the account. If the account supports automatic deposits, you can set them up to help build your account balance over time.

Read more: 17 savings accounts that pay 5% APY or higher

Alternatives to a holiday savings account

There are several alternatives to holiday savings accounts, each with pros and cons. However, one of the alternatives might be a better choice, depending on the situation. Here are a few other options to consider:

• Traditional savings account: Generally available at your existing bank or credit union, you can easily transfer money from your checking account. However, yields are often low.

• High-yield savings account: Typically available from online banks, these accounts have higher yields than standard savings accounts. In addition, you may be able to set up a holiday savings bucket. However, you often can’t transfer money as seamlessly from your checking account if your savings account isn’t with the same bank or credit union.

• Money market accounts: These accounts often have higher yields than standard savings accounts. You may also be able to get a debit card for easy access to your funds. That said, they may limit your monthly transactions.

• Certificates of deposit (CDs): CDs have fixed interest rates that can be higher than savings accounts. This can be useful for holiday savings since you know approximately when you will need the money. However, there are usually penalties for early withdrawals. This can be a problem if you need the money sooner.

There is no shortage of possible alternatives to holiday savings accounts. As mentioned, each type of account has pros and cons, and none will be the best choice in every situation.

Still, consider why you need the account and whether a holiday savings account is best. If you find another type of account is a better fit, it may be best to go with it, even if it isn’t specifically designated for holiday savings.