What Is a Christmas Club?

A Christmas club, also known as a holiday account, is a short-term savings account in which money is deposited periodically to be withdrawn at the end of the year for Christmas. Christmas club account holders earn interest on their account balances; if money is withdrawn early, fees and penalties may apply, discouraging depositors from using the account for unintended purposes.

Key Takeaways

  • A Christmas club is a short-term savings account in which money is deposited during the year so that account holders have money to spend during the holidays.
  • Also known as a 'holiday account', these savings vehicles are meant to ensure that savers have enough money allocated to gift-giving.
  • Account holders earn interest on their account balances, but if money is withdrawn early, fees, and penalties may apply.

How a Christmas Club Works

Because of the tremendous financial pressure put on people to spend during the holidays when spending is rife, many financial institutions—particularly smaller banks and credit unions—offer customers Christmas club accounts. Typically, Christmas club accounts offer systematic savings through automatic withdrawals from existing checking accounts. They are designed to help consumers to control their spending and avoid unnecessary debt.

Not having enough money to purchase gifts can be discouraging; going into debt to purchase them can be, too. Planning ahead can prevent disappointment, and it can help you spend according to a budget. Christmas club accounts can help prevent accumulating debt from holiday spending and keep accounts in the black.

The concept of a Christmas club account is to create an incentive to save now in order to have money to spend later.

The popularity of Christmas club accounts has waned over the years. The height of their popularity occurred in the 1960s and 1970s. Many banks and credit unions offer Christmas or holiday clubs, and consumers continue to take advantage of them.

Some banks and credit unions pay small dividends on these savings accounts. Instead of transferring to funds to another account, they mail the customer a check in the late fall to use for holiday shopping. Similar to Christmas club accounts, some banks and credit unions offer a vacation club account, with the same opportunity to allocate a portion of one's paycheck to save toward a vacation goal.

Christmas Club Origin

It is believed that the first Christmas club began in 1909. The treasurer of the Carlisle Trust Company, Merkel Landis, launched the club, gaining more than 350 members. Each member participated by saving $28 each, which was disbursed on December 1 to aide their Christmas shopping.

Example of Christmas Club

For example, the CDC Federal Credit Union in Atlanta offers a Christmas club account. Customers can open the account with as little as $25 and have a portion of their paycheck allocated to the account. On November 1, the balance of the Christmas club account is transferred to the customer's primary savings account for use. Like most Christmas club accounts, there are no fees assessed unless the funds are withdrawn prior to the transfer date.

The interest rates on Christmas club accounts do not offer high interest rates; it is wise to explore all savings options.