savings

Are Christmas club accounts still a good idea?

Still, the greatest benefit of a Christmas club account -- either a traditional one or one that you designate yourself -- is to avoid relying on credit cards to buy holiday gifts.

"Unfortunately, it's hard to make a strong case for using (traditional Christmas club accounts) when the interest rates are meager at best," says McClary. "People can get a slightly better rate of return by exploring other short-term savings options."

Alternatives to Christmas club accounts

Other than a do-it-yourself savings account you designate exclusively for the holidays, there are other ways to sock away money that will get you a better return on your investment than a traditional Christmas club account would.

For example, you can throw in a lump sum (if you have it) into a money market or certificate of deposit; just make sure the account matures before you start your Christmas shopping. If you do use credit cards, cash in any "cash backs" or gift cards prior to the shopping season.

If you don't have any money to plow into a savings account, you can still buy gifts using another throwback to the 1970s: layaway. With layaway, customers pay for items through installments, and this old-fashioned idea is being heavily promoted this year among some retailers, such as Sears, Kmart and Toys R Us.

"Before the mass popularity of credit cards, cash-strapped shoppers relied on store layaway plans to set aside purchases at a store and make periodic payments toward the full price," says Randy Mitchelson, owner of the online Daily Dollar Newsletter.

But if you do opt for a layaway plan -- sometimes also called "Christmas clubs" by retailers -- be careful, says Mitchelson. "Take a minute to understand the Christmas club or layaway rules upfront ... they may vary from store to store," he says.

Whether you use Christmas clubs or your own special savings account, the point of these gift-giving savings techniques is to avoid the inevitable panic that sets in early December -- and the ensuing credit card debt that follows because you haven't saved enough money. The key is to set up these savings plans early enough to reap the benefits.

"It is difficult for many people to come home each night and put $5 in a jar or piggy bank to be accumulated for some stated purpose," says Harlan Platt, author, economist and professor of finance at Northeastern University. "The nice thing about these clubs is that it is a type of forced savings."

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