What Is a Savings Club?
A savings club is a specialized bank account where individuals make regular contributions toward a specific savings goal. One common type is a Christmas club, where account holders save throughout the year for holiday expenses.
Typically offered by credit unions or banks, savings clubs help customers save for short-term goals. These clubs, like Christmas clubs, often provide incentives to encourage consistent contributions; early withdrawals may result in losing previously earned interest.
**Key Takeaways:**
– A savings club is designed for saving toward a specific future expense.
– Most savings clubs are provided by credit unions.
– Examples include Christmas clubs and vacation clubs aimed at saving for seasonal holidays.
– While most savings clubs are operated through bank accounts, informal clubs exist without interest on deposits.
How Savings Clubs Work
Savings clubs have varying terms but generally require regular deposits by a set date corresponding to a savings goal like a vacation or holiday season.
Without access to formal clubs, individuals can use high-interest CDs for saving over a specified period.
Deposits are often made from employment income through payroll deductions, ensuring consistent progress toward savings goals.
Savings Club vs. Savings Account
Savings club accounts may offer higher interest rates than regular savings accounts, but they also come with penalties for early withdrawals or missed contributions.
Families can use informal saving clubs to impart financial literacy and saving habits to younger members.
Informal joint savings clubs may involve group savings for shared expenses like group vacations. Interest may not be applicable, particularly in non-banking setups.
Example of a Savings Club
Let’s consider an example where two individuals, Justice and Skylar, are saving for a planned vacation to Hawaii. They set up a vacation club account a year in advance, agreeing to monthly deposits of $50 each for 12 months starting Jan. 1.
By depositing and earning interest, they receive their savings with interest after the set term, enabling them to fund their vacation debt-free.