Christmas Club Accounts: What Are They and Do You Need One?

A short-term savings account for all your Christmas spending.

December brings in holiday cheer — and a whole bunch of expenses. Some smart consumers manage the stress of holiday spending by setting up a Christmas club account to help them shore up their budget during the holidays.

If you don’t know what a Christmas club account is, it’s a short-term savings account dedicated to holiday spending. When set up months in advance, these Christmas club accounts can be quite practical. Put a little money away each month and withdraw the funds at the end of the year, in time to spend on Christmas shopping, travel expenses and more.

Christmas club accounts have been around since the ’70s, with the concept of setting aside money for a rainy day going even further back — and for good reason. Last year the average American spent $1007 for the holidays, and that figure is set to rise for 2019, according to the National Retail Federation. A holiday savings account could ease the strain on your budget and by extension keep the debt down to a minimum by giving you access to extra funds for holiday shopping.

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Here’s a closer look at how a Christmas club account works to determine if this traditional form of saving money for the holidays is right for you.

How Does a Christmas Club Account Work?

A Christmas club account is a type of savings account offered by a credit union or bank. Typically opened in January, regular automatic contributions are deducted from a linked checking or savings account. You can earn a small amount of interest and typically will gain access to the funds in late October or early November, in time for the holidays. Not all financial institutions offer Christmas club accounts — it’s best to compare the best banks for services available.

Christmas club accounts require discipline. Financial institutions will often charge penalties if you take out funds before the designated withdrawal period. Contributions are usually deducted from your account on a weekly or monthly basis. Fortunately, you don’t have to contribute much toward your Christmas fund. Many holiday savings accounts require as little as $5 in contributions and $0 to open.

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Who Is a Christmas Club Account Best For?

A Christmas club account is best for someone who is able to put some money aside regularly toward savings for the holidays and can qualify for a checking account. A checking account is necessary so that the bank can withdraw funds to apply toward the Christmas savings account.

Nowadays, credit unions are the main financial institution that offer Christmas club accounts. Credit union memberships are sometimes reserved for certain types of employees or alumni from a particular university, but there are other, less-exclusive credit unions, too. aSmarterChoice’s credit union finder tool can help you find a credit union you may be eligible to join in your area.

Holiday accounts are good for short-term planning, like saving up some Christmas shopping money to avoid falling into debt at the end of the year. Although a Christmas Club account can earn some interest, the amount is typically not high enough to beat other some of the other savings products available, such as certificates of deposit or a high-yield savings account.

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Alternatives to a Christmas Club Account

Holiday club accounts are designed to be short-term. The funds are released to you toward the end of the year — even if you don’t need the cash. There may be better alternatives to a Christmas club account, especially if you’re able to save larger amounts of money or would like more flexibility. Here are some Christmas club alternatives:

High-Yield Savings Account

High-yield savings accounts typically pay better interest rates than traditional savings accounts. Most offer competitive rates because they only offer online banking. The top high-yield accounts have no monthly fees or minimums, so you can save money and withdraw as much as you need year-round.

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Certificates of Deposit

If you like how a Christmas club account only allows you to access your funds at the end of the year, certificates of deposit may be a good alternative. Typically, CDs mature as soon as six months, so you can accrue higher interest in time for the holidays. You’re also likely to earn more favorable interest rates from a CD.

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Layaway Plans

If you have some bigger ticket items to purchase for Christmas, a layaway plan may be the perfect solution. Some stores, such as Walmart, will let you pay off your items in installments for free while most other stores will charge a small fee. Be sure to read the fine print, however. If you cancel the layaway, you may have to pay a cancellation fee from any funds due back to you.

Learn More: Best CD Accounts

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Prepaid Debit Cards

Avoid getting into debt over the holidays by using a prepaid debit card. You won’t earn any interest, but you won’t need a bank account to have a prepaid debit card, either. Add funds to your card as you go, and use the card throughout the holiday season for your expenses. Once you spend the debit card’s balance, the card no longer works, so you don’t have to worry about overdraft fees or credit card bills in January.

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Credit Card Bonuses and Rewards

If you’re responsible about spending, there are a few ways you can use a credit card to your advantage at Christmas:

  • Save up cash-back rewards from your purchases throughout the year; apply the amount toward holiday spending or billing statement.
  • Redeem cash rewards as gift cards for presents.
  • Use miles and points from travel rewards credit cards for free holiday travel.
  • Sign up for credit card offering introductory no-interest period on purchases; pay balance before the promotional period ends.

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A Short-Term Savings Account for Christmas

If you want to take charge of your finances and avoid end-of-the-year debt, setting up a short-term Christmas Club savings account could be a good option. The holidays are an expensive time of the year. Planning ahead to have some spending money can ease financial pressure during the holidays, so that you can relax and enjoy Christmas.

Survey Says: Majority of Shoppers Are Missing Out on Free Money During the Holidays

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About the Author

Cynthia Bowman

Cynthia Paez Bowman is a personal finance writer with degrees from American University in international business and journalism. Besides writing about personal finance, she writes about real estate, interior design and architecture. Her work has been featured in MSN, Brex, Freshome, MyMove, Emirates’ Open Skies magazine and more.

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