Are Christmas club accounts still a good idea?

Santa claus holding piggy bank.
  • While banks have backed away from Christmas club accounts, many credit unions offer them.
  • Christmas club accounts are a great way to help save, but there may be better options.
  • Low returns on savings accounts have people looking for higher rates in money markets and CDs.

Your mother probably had a Christmas club account at a local bank or credit union. You might remember her faithfully depositing $5 or $10 a week all year long to save up money for the holidays.

But is this simple method of saving for the holidays -- which reached their height of popularity in the 1970s -- still relevant today?

A Christmas club account -- which is not really a "club" at all -- is simply a special short-term savings account set up by a financial institution to encourage nest-egg building for the holidays. Most can be opened with a nominal deposit.

But there are few financial perks to be gained from Christmas clubs: The return on these accounts is negligible, and you usually cannot take the money out until the start of the holiday season, usually around Nov. 1.

The point, of course, is not to make a killing on compound interest, but to safeguard your money -- from yourself -- so you have enough funds to spend for gifts or even travel during the holidays. And it helps prevent a pile of credit card debt in January.

Christmas clubs still alive at credit unions

While some banks still offer Christmas club accounts, credit unions, by far, are still the champions of this type of savings vehicle. According to the Credit Union National Association, or CUNA, nearly 72 percent of credit unions run Christmas clubs, and consumer interest in these clubs is holding steady.

"These kinds of accounts, small as they may be, are important because they encourage saving; this small step could lead to better saving habits," says Patrick Keefe, spokesman for CUNA.

At TruStone Financial Federal Credit Union in Plymouth, Minn., there's been a slight uptick in its "Holiday Helper" account this year, says Katie Grindeland, marketing manager for the credit union.

"Now, I must confess, this number is up by less than 1 percent (over last year) but an increase nonetheless," she says. Balances are slightly down over last year.

Grindeland notes that while the original intent of Christmas clubs was to target savers, the appeal of other financial products such as money market accounts, rewards programs for credit and debit cards, and certificates of deposit have taken the shine off Christmas club accounts. But that may be changing because of the belt-tightening that has taken hold among American consumers: "The allure to budget and save is back," she says. "A revival and/or a customization of (the Christmas club account) may be what is needed."

But these tiny pockets of Christmas club revivals at credit unions don't make a strong trend. Bruce McClary, financial educator and spokesman for ClearPoint Credit Counseling Solutions, a nonprofit nationwide financial education organization, says banking has evolved to the point where people can set up several accounts at the same bank, each for a specific purpose. "Being able to customize savings and checking in that manner has obscured the traditional Christmas club services," says McClary.


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