many, the winter holidays conjure up images of giving and receiving:
Giving out hundreds of dollars in December, then receiving a stack
of bills in the new year.
But there's another vision, one
of wise consumers planning for this predictably expensive time by
saving up, rather than spending away.
"I used to hate Christmas because
you get this bill in January that said you owe
two or three thousand dollars," says Greg
Benson, a former government relations official
with America's Community Bankers, a trade organization.
"Now I put $100 away each month, add my own
interest and I give my wife a check every year
on Nov. 1."
Top savings choice
That kind of stockpiling is what experts advise
people to start doing now -- if they haven't already
-- so they can earn a little interest at the bank
instead of paying out even more to the credit card
At the top of the recommendation list is a money
market account, which offers slightly higher
rates than a standard savings account but doesn't
lock money away in the manner of a certificate
of deposit, or CD.
"It's not a bad way of going," says
Errold Moody, a financial planner and lecturer in San Leandro, Calif.
"You get a reasonable return without having to worry about
risk, and you have a lot of liquidity."
That can come in handy if a gift shows up in stores between now
and December and the consumer needs to take out money to buy it,
Moody says. But if that person wants an even higher rate -- and
has the willpower to resist spending until the holidays approach
-- a short-term CD might be the best bet. (For the best rates in
your state, check out Bankrate.com's 100
Highest Yields, which updates weekly.)
The benefit of a CD is even greater if a consumer
can add money to it the way one would to a savings account.
"Some banks do allow you a limited number of
additions to a CD that will hold a rate,"
says Rob Rowe, regulatory counsel for the Independent
Bankers Association of America. "If you open
a CD for something like $1,000 for six months,
you can sometimes put in something like three
Of course, there usually is a penalty for early
withdrawals from CDs, so experts advise that consumers be sure they
can leave the money put.
Christmas club tradition
For more traditional types, the old Christmas
club account is an option. These products
pay rates similar to those offered by regular
savings accounts and encourage people to save
during the months leading up to the holidays.
Typically, customers make monthly or weekly
deposits through electronic payroll deductions or other methods
while banks either prevent or penalize withdrawals. In exchange,
depositors get a check or automatic transfer to their regular account
sometime in October, November or December for the overall amount
"Christmas clubs or vacation
clubs have been something that have been offered
for years and years,'' says Benson. "There
are ways that institutions are using them, especially
in nonmetropolitan areas, where the customers
like them, have used them for years and don't
want to get rid of them."
While finding a Christmas club account
is not difficult, credit unions and smaller community
banks are more likely to offer them over regional
and large banks. Several advertise them on the
Internet. The American Bankers Association's 2002
retail banking survey found that about 31 percent
-- down from 68 percent in 1999 -- of large banks
offer some sort of a club account, whether it's
for Christmas, Hanukkah, vacation or other special
purchase. The number of community banks offering
these accounts has remained steady at 35 percent.