Christmas Club

A Christmas club, also known as a holiday account, is a short-term savings account in which money is deposited periodically to be withdrawn at the end of the year for Christmas. Christmas club account holders earn interest on their account balances; if money is withdrawn early, fees and penalties may apply, discouraging depositors from using the account for unintended purposes.

Because of the tremendous pressure put on people to save money for Christmas expenditures and the resulting debt, many financial institutions, especially smaller banks and credit unions, offer customers Christmas club accounts. Usually, Christmas club accounts offer systematic savings through automatic withdrawals from existing checking accounts.

The popularity of Christmas club accounts has waned over the years, with the height of its popularity occurring in the '60s and '70s. According to the Credit Union National Association (CUNA), nearly 72% of credit unions offer Christmas or holiday clubs, and consumers continue to take advantage of them.

It is believed that the first Christmas club began in 1909. The treasurer of the Carlisle Trust Company, Merkel Landis, launched the club, gaining more than 350 members. Each member participated by saving $28 each, which was disbursed on December 1 to aide their Christmas shopping.

For example, the CDC Federal Credit Union in Atlanta offers a "Christmas Club" account. Customers can open the account with as little as $25 and have a portion of their paycheck allocated to the account. On November 1, the balance of the Christmas club account is transferred to the customer's primary savings account for use. Like most Christmas club accounts, there are no fees assessed unless the funds are withdrawn prior to the transfer date.

Some credit unions pay small dividends on these savings, and instead of transferring to another account, they mail the customer a check in the late fall to use for holiday shopping. Similar to Christmas club accounts, some credit unions offer a vacation club account, with the same opportunity to allocate a portion of one's paycheck to save towards a vacation goal.

Not having enough money to purchase gifts can be discouraging; going into debt to purchase them can be, too. Planning ahead can not only prevent disappointment, but it can help you spend according to a budget. Christmas club accounts can help prevent surmounting debt from holiday spending and keep accounts in the black.