What Is a Christmas Club Account?

A Christmas Club account, also known as a holiday club account, is a specialized savings account designed for people to set aside money throughout the year. The accumulated funds are then made available before the holiday season, helping individuals cover holiday shopping and travel expenses.

Key Takeaways

• A Christmas Club or holiday club account is specifically intended to help individuals save for holiday expenditures.
• This account often permits regular direct deposits from your paycheck, with funds being disbursed before the holiday season.
• Although their popularity has waned recently, Christmas Club accounts are offered mainly by community banks and credit unions.
• Similar savings plans, such as vacation clubs, are available for saving towards vacations and other specific goals.

How Christmas Clubs Work

The primary function of a Christmas Club account is to relieve you from the stress of manual savings by facilitating automated deposits throughout the year. Participants can set up automatic deductions from their paychecks into the account. Typically, the saved funds are transferred to a customer’s primary account, like a checking or savings account, on November 1st of each year.

These accounts are designed to empower individuals to manage the financial pressure of holiday shopping and related costs, such as travel, by promoting financial discipline. By saving throughout the year, people can avoid falling into credit card debt for holiday expenses and maintain a budget more effectively.

Similar accounts, such as vacation club accounts, allow users to save for other goals. In these cases, funds are often released in the spring or early summer, aligning with vacation schedules.

It’s important to note that early withdrawals from a Christmas Club account may incur penalties and result in any earned interest loss.

Special Considerations

Despite their advantages in motivating savings and preventing debt, it’s important to be informed that Christmas Club and similar accounts generally offer lower interest rates than other savings accounts. Therefore, individuals should consider other savings options that provide better interest rates and more efficient savings.

History of Christmas Clubs

The inception of Christmas Club accounts dates back to 1909, with the Carlisle Trust Company being among the first to offer such an account. The initial launch involved around 350 members, each contributing an average of $28.

These accounts enjoyed widespread popularity during the 1960s and 1970s but have become less common. Today, they are primarily available through smaller community banks and credit unions.

Example of a Christmas Club

A contemporary example is the Christmas Club account provided by the CDC Federal Credit Union in Atlanta. This account requires an initial deposit as low as $25 and allows users to allocate a portion of each paycheck into the account. Funds are distributed back to participants on November 1st, with no associated fees, provided no early withdrawals are made.

Frequently Asked Questions (FAQs)

What’s the Point of a Christmas Club?

A Christmas Club account assists individuals in saving for the holiday season by automating deposits throughout the year. This method helps prevent credit card debt and encourages adherence to a holiday budget.

Are Christmas Clubs Still Popular?

While Christmas Club accounts were prevalent in the 1960s and 1970s, their prevalence has decreased. Today, they are more commonly offered by local credit unions and community banks. The first such account was established in 1909 by the Carlisle Trust Company in Pennsylvania, with initial contributions averaging $28 from around 350 members.

The Bottom Line

A Christmas Club account can be a valuable tool for saving for holiday expenses and avoiding credit card debt. Whether this type of account suits you will depend on your financial situation and objectives.