Understanding Christmas Clubs
A Christmas club, often known as a holiday club account, is a specialized savings account where individuals make regular deposits throughout the year. These savings are then withdrawn just before the holiday season to finance holiday shopping and related expenses like travel.
How Christmas Clubs Operate
The primary aim of a Christmas club account is to automate savings leading up to the holiday season. Participants have the option to set up automatic deductions from their paychecks for deposit. Typically, these funds are transferred to another account of the customer, such as a checking or savings account, on Nov. 1 each year.
By using these accounts, individuals can steer clear of financial stress linked with holiday shopping and travel expenses. Accumulating funds throughout the year can prevent resorting to credit card debt for gifts and assist in adhering to a holiday budget.
Similar accounts, like vacation clubs geared towards saving for holidays, are also accessible. Depositors can allocate a portion of their monthly paycheck into these accounts, with funds often released in the spring or early summer—perfect timing for summer vacations.
If funds are withdrawn prematurely from a Christmas club account, some financial institutions may impose a penalty, potentially resulting in a loss of interest accrued.
Factors to Consider
Despite the motivational branding of Christmas club accounts, they typically offer modest interest rates. In comparison, other savings accounts may provide more efficient saving opportunities with higher interest rates. Therefore, it’s advisable for customers to explore alternative options before committing to a Christmas club or vacation club account.
Origin and Decline of Christmas Clubs
The inception of Christmas clubs is credited to the Carlisle Trust Company in 1909, initiated by their treasurer, Merkel Landis, with approximately 350 members contributing an average of $28 each.
While these accounts were popular in the 1960s and 1970s, their prevalence has declined over the years. Today, they are predominantly offered through local credit unions and community banks.
Illustration: CDC Federal Credit Union’s Christmas Club
A contemporary instance is the Christmas Club available at CDC Federal Credit Union in Atlanta. With an initial contribution starting at $25, participants can portion a segment of each paycheck, receiving the balance back on Nov. 1. The account is free of charges if funds are not withdrawn before this date.