December comes with a whole slew of expenses that can break your budget if you have not been saving up for them. Between buying gifts, hosting parties and traveling to visit family, you can easily spend hundreds, or even thousands, of dollars. Unless you have been saving money throughout the year, you will probably end up putting these expenses on a credit card. You'll the have to pay them back all year next year, or longer, and the interest expenses will add up. Instead of going into debt next year, consider opening a Christmas Club account to help you reach your savings goals.
How Christmas Club Savings Accounts Work
A Christmas Club is a savings account offered by many banks and credit unions. You typically open the account at the beginning of the calendar year and set up automatic contributions to the account on a regular schedule, whether you choose to make them weekly, bi-weekly, monthly or quarterly. The bank or credit union often pays interest on the balance in the account throughout the year so your savings will grow.
Near the end of the year, you can withdraw the money saved and all of the accrued interest and use this money to make your holiday purchases. Many banks and credit unions charge penalty fees if you withdraw money from your Christmas Club account before the designated withdrawal period. Each bank or credit union has its specific details that you should read and understand before opening an account.
Advantages and Disadvantages
The main advantage to a Christmas Club is that it forces you to save money throughout the year for your holiday spending. Because the money is in a separate account, you are less likely to dip into it than you would be if you just left the money in your checking account or stashed cash in your home. Early withdrawal penalties might deter you from using money from the account as well. Another advantage is that Christmas Club accounts often pay higher interest rates than other types of savings accounts with similar deposit amounts. Moreover, of course, your Christmas Club savings has the advantage of helping you avoid accumulating credit card debt while doing your holiday shopping.
Christmas Clubs are not the best choice for everybody, however. For example, if you like to do your shopping throughout the year, you will have trouble if you cannot access your money without penalty until the fall. Another potential disadvantage is that some accounts automatically deposit the account balance into your checking account in the fall, and you might accidentally spend Christmas money on other expenses if you did not notice the deposit.