What Is a Christmas Club?

A Christmas club is a type of savings account in which depositors make routine contributions throughout the year. The accumulated savings are then withdrawn at the end of the year to provide funds for Christmas shopping.

Participants can choose to have the deposited funds deducted from their paychecks automatically. If money is withdrawn early, fees and penalties may apply.

Key Takeaways

  • A Christmas club is a type of savings account designed to help users save for their Christmas shopping.
  • The account allows regular deductions from the user's paycheck, which are then saved and distributed to them near the beginning of the holiday shopping season.
  • Although Christmas club accounts have declined in popularity in recent years, modern examples still exist. Similar accounts, such as vacation clubs used to save for vacations, are also available.

Understanding Christmas Clubs

The intention behind Christmas club accounts is to incentivize account holders to save funds in advance for the end-of-year Christmas shopping. This way, participants can avoid the stress of last-minute shopping and the need to rely on consumer debt, such as credit cards, to afford their gifts.

Christmas club accounts, which are sometimes referred to as holiday accounts, were popular in the 1960s and 1970s; although they have become less common in recent years. Today, they are more commonly found among smaller local credit unions.

Unlike most bank accounts, in which the interest earned is added to the account balance itself, the interest from Christmas club accounts is mailed to the account holder as a check shortly before the holiday shopping season. This way, the recipient can feel that they are receiving a "gift" just in time for the holidays, reducing the stress that often accompanies that time of year.

Similar bank accounts are available to help save for other goals, such as funding a vacation. These so-called "vacation club accounts" also allow savers to allocate a portion of their paycheck each month to help fund a future vacation, with the funds being released shortly before the specified vacation date.

Although the branding and incentives of Christmas club accounts may help savers stay motivated in achieving their goals, the accounts themselves typically do not pay particularly high interest. In many cases, alternative products may in fact allow the saver to achieve their goals more efficiently. For this reason, customers should be careful to explore their alternatives before committing to a Christmas club or vacation club account.

Real World Example of a Christmas Club

It is thought that the first Christmas club was launched by the Carlisle Trust Company in 1909. The then-treasurer of the company, Merkel Landis, launched the club with roughly 350 members, each of whom contributed $28. These savings were then distributed to the participants on Dec. 1 of that year, to help aide in their Christmas shopping.

A modern example is the CDC Federal Credit Union in Atlanta, which offers a Christmas club account that is available to customers with initial contributions as low as $25. The account allows participants to allocate a portion of their monthly paycheck, with the balance distributed back to them on Nov. 1. The account has no fees, provided that the user does not withdraw funds prior to Nov. 1.