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Guide To Christmas Club Savings Accounts

Guide to Christmas Club Savings Accounts
Susan Guillory
Susan GuilloryUpdated February 6, 2023
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The annual rush to find Christmas presents for everyone on your list can put a strain on your bank account. The average American spends $1,131 on the holidays, and 65% of that is charged to credit cards. Credit cards can create an extra expense in interest and fees, but if you don’t have the cash to buy presents, what else can you do?There is a solution that won’t cost you extra: a Christmas savings account, also known as a Christmas club. Keep reading to learn when Christmas clubs originated, how they work, and the pros and cons of saving for the holidays this way.

What Is a Christmas Club?

A Christmas savings club is a type of savings accountdesigned for putting aside money for the holidays. You can contribute to it throughout the year, while earning interest. When the holidays roll around, you can use the money you’ve saved to buy presents, pay for travel, or cover any other holiday-related expenses.

History of Christmas Clubs

Christmas club saving accounts have been around for over 100 years. The first Christmas club was started in 1909 by the Carlisle Trust Company in Pennsylvania. These clubs grew in popularity, and in the 1920s, banks encouraged parents to set up these savings accounts for their kids, to learn how to save money.

Do Christmas Clubs Still Exist?

Christmas clubs have waned in popularity, primarily because there are many other types of savings accounts that earn higher interest, including high-yield savings and other accounts offered by online banks and credit unions. But you can still find Christmas clubs around.Recommended: What Is Zero-Based Budgeting?

What Is a Christmas Club Account?

A number of banks and credit unions still offer Christmas club accounts. At some institutions, these are short-term accounts similar to a Certificate of Deposit (CD). At others, they are much like regular savings accounts. 

How Do Christmas Club Accounts Work?

A Christmas club account works similarly to other types of savings accounts. The difference is that Christmas accounts are for a specific purpose (holiday spending). You can set up automatic deposits from your paycheck to ensure you’re contributing throughout the year.As with any savings account, your balance will earn interest, though rates can be low and vary among banks. You may not be able to withdraw your funds until a specific date near the holidays without incurring a penalty.Recommended: Opening a Savings Account

Pros and Cons of Christmas Club Accounts

Most Americans, when they don’t have the cash for holiday gifts, will opt to use a credit card. This option can be costly, as it involves interest and other fees. And if your credit is poor or you have no credit history, you might not qualify.But saving money in a Christmas club means you don’t have to rely on financing, and you’ll even earn a little interest on what you set aside. If you typically spend any extra money you have in your checking account, having a dedicated savings account for your Christmas spending can help you break that habit and have the cash when you need it most.And if you have kids, opening a Christmas club account for them is a great way to teach them valuable savings lessons.Christmas savings accounts aren’t always competitive in the interest they offer. You may be better off opening a traditional savings account with a credit union or online bank to get a higher rate.If you need cash before the holidays, it’s possible you won’t be able to withdraw your money without paying a penalty. And Christmas club accounts aren’t as common as they once were, so your bank may not offer them.
Pros of Christmas ClubsCons of Christmas Clubs
Better alternative to borrowing money or charging purchasesMay not earn much interest
Structured way to set money aside for the holidaysMay impose penalties for early withdrawal
Can teach young consumers about savingNot all banks offer them

Requirements for Opening a Christmas Club Account

If you find a Christmas club account you’re interested in, check to see what’s required to open an account. Some banks require account holders to be 18 or older. So if you want to open an account for your kids, you may need to be the primary account holder. There may also be a minimum deposit requirement to open the account, but this is usually low.

Special Considerations When Opening a Christmas Club Account

There are a few things to look into when opening a Christmas club savings account. Pay attention to when you can withdraw your money. If you need the money in May, for example, you may have to pay a penalty fee to do so.Also, find out what the bank’s “compounding period” is. The compounding period is how frequently it pays interest. If the bank pays interest every quarter and you open the account in October, you’re not going to earn as much interest as you would if the bank pays interest monthly.

Alternatives To Christmas Club Accounts

While saving money for the holidays is a great idea, a Christmas savings club might not be the best fit for your needs. Here are some other options.

Traditional Savings Account

A traditional savings account with a bank or credit union is always a good place to squirrel away money. Some banks even offer different “buckets” you can label with various savings goals, like the holidays, home repairs, or a vacation.

High-Yield Savings Account

High-yield savings accounts are great for earning a decent amount of interest over a short period of time. That makes them ideal for saving for holiday expenses.

Money Market Account

Another option is a money market account. A kind of hybrid between checking and savings, money markets earn interest but also allow you to make purchases with a debit card or checks. 

The Takeaway

A Christmas club account is a type of short-term savings account that originated in the early 20th century. It allows consumers to put aside money throughout the year for holiday expenses. Adults can set up automated deposits from their paychecks, or kids can deposit cash at a teller or ATM. The downside is that these accounts don’t pay as much interest as other savings vehicles, like high-yield savings accounts. The main benefits are to create a healthy savings habit and avoid the fees associated with credit cards.Not sure which option is best for you? Lantern by SoFi can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on APY, fees, and balance minimums. Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

How often can I withdraw from a Christmas club account?
What interest rate do Christmas club accounts offer?
Are Christmas club accounts worth it?
Do all banks still offer Christmas club accounts?
Photo credit: iStock/CatLane

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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