Christmas Club Accounts

by Jeffrey Strain

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Get a Head Start on the Holidays

If you find that you're putting another holiday season on your credit cards and have made "a credit free holiday season" one of your coming New Year's resolutions, you might want to consider starting an old fashioned Christmas Club account.

While the "Christmas Club" account is the most popular of these type of banking accounts and thus the defacto name for them, you can also find them geared for other holidays or events such as Hanukkah or a vacation. Many banking institutions have varieties of these accounts, but credit unions and smaller community banks are more likely to offer them over regional or larger banks. The main theme for all of them is an easy way to save small amounts of money for a specific event over time.

There is nothing fancy or complicated about these accounts. You simply put away a small amount of money on a regular basis, which adds up during the year. You then get that money in a lump sum right before the holiday season. You're usually required to make a set monthly or weekly deposit to the account and there are penalties if you withdraw the money early or, in some cases, you may not be able to access the money until the specified date.

The interest you earn will be minimal if anything at all, but the interest is usually not the main reason for creating these accounts. While the account won't pay much in interest, you still earn a good return since you avoid the credit card interest you would otherwise have to pay without the account. It's also a "forced" saving method since you're likely to leave your money in there all year due to the penalties for early withdrawal.

The specifics of these accounts vary from institution to institution, so you'll have to ask your bank or credit union for the rules for their particular accounts. When choosing, the main issue you'll want to know is if you can withdraw the money early and, if you can, what penalty must you pay for early withdrawal and if there are any fees for the account.

For those of you with a bit of discipline, it can be even more beneficial to create a Christmas Club account on your own. That is, find a place to set aside a small amount of money each week or with every paycheck.

The advantage of saving and having the money yourself as opposed in a banking account is that you have access to the money to purchase holiday gifts at any time during the year when you find them. Since shopping before Christmas is often more expensive than other times of the year to purchase gifts, this can be a great savings advantage.

When deciding whether to save this way on your own or by using a bank's services, you need to be honest with yourself. When doing it on your own, it's essential that you have the discipline to place this money aside since not doing so will result in running up your credit card bill another year. If you don't have this discipline or are not sure, setting up an account through a banking institution will most likely be to your benefit.

Jeffrey Strain is the owner of Saving - a website dedicated to saving you money and also writes the daily updated blog Personal Finance Advice

Take the Next Step

  • Think about all you're saving in interest rates by saving through out the year!
  • Check with your bank to see what types of accounts they might offer.
  • Get specific! What are the rules, penalties, and minimum deposits of these types of accounts?
  • Join those who 'live better...for less' - Subscribe to The Dollar Stretcher newsletter, a weekly look at how to stretch both your day and your dollar! Subscribers get a copy of our ebook Little Luxuries: 130 Ways to Live Better...For Less for FREE!

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