You Just Got Your Holiday Bonus. Should You Pay Extra Toward Student Loans in 2026—or Save Instead?

You just got your holiday bonus. Should you put that money in a high-yield savings account or a certificate of deposit (CD), or should you use it to pay down your student loans?

If your goal is to end the year in the best financial position possible, you should direct your funds toward the option with the highest interest rate. Basically, it depends on when you took out your student loans and the types of savings accounts and CDs that are available.

If you took out an undergraduate student loan anytime between mid-2006 and 2025, your interest rate could be as low as 2.75% and as high as 6.8%. For graduate students, parents of students, and professional borrowers, the rates are often higher. (Loans taken out before 2006 have variable interest rates.)

As of Dec. 17, 2025, the top rate for a one-year CD was 4.3%, and the best APY on a high-yield savings account was 5%.

So if your student loans’ interest rates exceed 5%, you would save on interest if you used your bonus to pay down your student loans. If that’s not the case, then you’d earn more money by parking your funds in a high-yield savings account.

There’s one exception, though: what about if you have no emergency savings whatsoever? In that case, it would be a good idea to devote some money to building an emergency fund—otherwise, when faced with an emergency, you may have to turn toward other sources of money that are less desirable, like raiding your retirement account or racking up credit card debt.

Putting The Money Toward Your Savings

Putting your money into a savings account can help you build an emergency fund, which has been hard for many people to accumulate this year. You might have struggled to afford emergency expenses this year. You might have even had to dip into your retirement savings or take out debt.

A CD is a savings account that earns interest on your deposit at a fixed rate for a specified period. To earn this interest, you must keep the money in the CD until the term ends. If you want to withdraw cash from your CD, you’ll typically have to pay a fee.

A high-yield savings account is more flexible than a CD: you can withdraw the money you deposit at any time. However, there’s a limit to the number of times you can withdraw money from your account each year.

In addition, if you earn interest from your CD or high-yield savings account, the money you earn will be taxed at your income tax rate. (You will not be taxed for paying down your student loans.)

Putting The Money Toward Your Student Loans

Using your bonus to pay down your principal student loan balance will reduce the interest you pay over time and help you pay off your loan quicker.

Most federal student loans accrue interest daily. If you have low monthly payments on an income-driven repayment plan that do not cover the interest, the unpaid interest can be added to the principal balance. This increases the time you are in repayment and the total amount of interest you have to pay.

It is important to note that in some cases, loan servicers may credit the extra payment you make to future payments. That means instead of lowering the balance, your payments for the next few months would be $0. If you want your payment to be applied directly to the principal balance, you may have to request that your loan servicer not place your payments in “paid ahead status.”

That said, if you are struggling to make your monthly payments, as many student loan borrowers have faced this year, paying ahead with your bonus could lift some of the payment burden in the first few months of 2026 and help you get back on track.