Does the room start spinning when your first credit card bill arrives from your holiday spending spree and you realize the real cost of your largesse?

It’s at moments like these that many people make an earnest New Year’s resolution that next Christmas will be largely credit-card free. But if you’re like most people …

Well, say hello again to a solution available to most credit union members — the Christmas club account. It is simplicity itself — a sweet, innocent and charmingly old-fashioned notion that really works.

The interest you earn is modest. But even with low interest, a club is a far less expensive way to pay for your year-end generosity than credit card financing.

A Christmas club account is basic: You put aside a little bit of money on a regular basis, it adds up during the year and you get that money in a lump sum on a set date — just before Christmas. Fund it via direct deposit with money deducted from your paycheck starting now, and over the next few months you won’t miss what you never had.

And you’re likely to leave your money in there all year because penalties for early withdrawal, while they’re not hefty, are a good deterrent.

Saving a little for the holidays

Kathy Egan had a clerical job at a hospital when she opened a Christmas club account at her credit union.

Newly divorced with a toddler, she was determined to give her son a nice Christmas. Every pay period, $5 was deducted from her check for the club account. At the end of September, the money was moved into her savings account, where it stayed until she was ready to go shopping.

“It allowed me about $130 at the end of the year to buy my son something,” she says. “It was a forced savings to make sure I could get something for him and not have to ask my parents.”

That was 16 years ago. Now a hospital administrator in South Florida, Kathy has nine supervisors who report to her and three support people. Her son is grown. But she still has a Christmas club account. Over the years, she’s gradually increased her deduction; now, she takes out $30 per pay period for the club account. With interest, it gives her about $800 in Christmas cash.

“At first, it’s difficult because maybe that $5 a pay period, you need it,” she says. “But come Christmastime, you don’t have to charge things and pay interest. I don’t want to go into debt and pay for Christmas all year long.”

Like Kathy, many club users like the benefit the accounts can bring to children. Setting up separate accounts for mom, dad and the kids is popular. And many a parent has provided “matching funds” every time a youngster puts a dollar or two into an account from chore money or allowances.

Avoid hock shock

“Many, many credit unions offer Christmas clubs,” says Mike Schenk, vice president of economics and statistics for the Credit Union National Association. “They’re a handy way for budgeting for big outlays. For big-ticket items that occur on a regular basis, many credit unions offer these accounts so people don’t have to go into hock.”

A 2008 year-end survey by CUNA reports that 71.8 percent of the 8,088 credit unions throughout the nation offer Christmas club accounts, and 82.5 percent of the nation’s 91 million credit union members have access to the service at their credit unions.

“It’s a good idea, as opposed to borrowing, like a credit card,” says Steve Brobeck, executive director of the Consumer Federation of America. “It’s far less expensive to save money in a Christmas club, even one that pays little or no interest, than to finance purchases with a credit card. They’re fundamentally a good idea that those who cannot afford to pay cash for Christmas-related expenses should consider.”

Before you open a Christmas club account, Brobeck and Schenk agree, you need to pay attention to how the account is structured.

Old-fashioned, but still highly efficient

It’s a balancing act. More interest is nice, but opening an account that you won’t dip into before next Christmas (because of a penalty fee) is also valuable.

A few things to keep in mind:
  • Some club accounts pay higher interest than regular accounts, and some pay less.
  • Some pay no interest at all.
  • Some will allow you to have access to the funds earlier in the year if you need them.
  • Some won’t release the money at all until the assigned date unless you close the account.

Give your bank a try

If you’re not a credit union member, your bank may offer you a Christmas club program.

As with credit unions, you’ll want to check with your banker on the specifics of the account. Your interest rates will be low — that’s a fact with any Christmas club account — and you’ll want to ask about early withdrawal fees and how to access the funds if you need them early.

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