What Is a Savings Club?

A savings club is a type of bank account in which the account holder makes regular contributions toward a predetermined goal. A common example are so-called Christmas clubs, in which the customer makes regular contributions throughout the year and withdraws the amount saved prior to the Christmas holidays.

Savings clubs often involve various incentives designed to encourage the customer to follow through with their intended contributions. For example, withdrawing from the savings club prematurely might lead to the forfeiture of interest previously accrued.

Key Takeaways

  • A savings club is a type of bank account created to help save for a specific future expenses.
  • Common examples include Christmas clubs and vacation clubs, which are used to save for Christmas shopping and future vacations.
  • Although most savings clubs are administered using bank accounts, some informal savings clubs can also be made, in which case no interest is earned on the deposits.

Understanding Savings Clubs

Savings clubs can be established with various terms and restrictions. However, they typically share a schedule in which the depositor is required to put forward regular deposits before a specified date is reached. This date is typically associated with a savings goal, such as a planned vacation, college enrollment, or the holiday shopping season.

The deposits are often drawn from the depositor's employment income, such as through a deduction from their payroll deposits. In doing so, customers can ensure that they are consistent in steadily progressing toward their savings goal.

Savings club accounts may offer slightly higher interest than a typical savings account. However, they also often involve penalties for withdrawing funds prematurely or for failing to make a scheduled contribution. Therefore, the actual financial performance of the account will depend on how closely the depositor adheres to the intended program.

In some cases, the term "savings club" may be used to describe a joint account involving more than two account holders. These circumstances, which are relatively rare, may be used in situations where a group of people wish to save together for a shared expense, such as a group vacation. In this case, members will typically deposit the same amount into the account over set time intervals, such as once per month.

Depending on whether a formal bank is involved, these kinds of informal savings clubs may in fact not involve interest payments at all. Rather, they might simply be used privately among individuals who wish to "put away" funds for a future use. Similarly, families sometimes use informal savings clubs as a way to teach children and teenagers about financial literacy and the value of saving.

Real World Example of a Savings Club

Vanessa and Katrina are saving for a long-planned vacation to Hawaii. To help fund their trip, the two of them decided to start a savings club bank account a year in advance. Because their particular savings club involves saving for a vacation, it is commonly known as a vacation club.

Under the terms of their vacation club, Vanessa and Katrina agree to each deposit $50 per month for 12 months, beginning on Jan. 1 and ending on Dec. 31. By depositing their money at the bank, they are able to earn interest on their deposits. However, they also face penalties if they withdraw their funds prior to the Dec. 31 end date. Similarly, they are penalized if they fail to make one of their scheduled monthly contributions.

Shortly following Dec. 31, Vanessa and Katrina receive a check in the mail for the funds they have saved, along with the interest earned during the year. With these savings in hand, they are able to fund their vacation without relying on consumer debt.