Christmas in July: The return of the Christmas Club

These days, you might imagine Santa Claus saying "Ho! Ho! Holy cow!" when he realizes how much he spends on holiday shopping.

And if he's anything like the average American, that price tag is about $800, a figure that has fluctuated up and down only slightly in the last several years, according to The Gallup Organization's annual October Christmas shopping poll.

Chances are Santa, like many of us, wishes there was an easy way to put a little money aside every month so the final tally didn't leave such a hefty mark on his wallet.

Lucky for all of us, there is. And appropriately enough, it's called the Christmas Club.

Old savings idea, new Christmas Club

The Christmas Club is an old idea, but one that's becoming more popular as purse strings grow tighter and people spend less and save more. In short, the "club" is an interest-bearing savings product designed to help people easily save money each month and then receive a lump sum withdrawal sometime near the holiday season.

The first Christmas Club may have started in 1909, according to author Joseph Nathan Kane, in his book "Famous First Facts." The originator was a Pennsylvania bank, the Carlisle Trust Company. About 350 customers joined the Carlisle's club, saving, on average, about $28 apiece - not too shabby for 1909 dollars.

The product came in and out of vogue through the decades leading up to the credit card boom, when the idea fell out of style and disappeared from many mainstream banks. But after our most recent financial crisis in the late 2000s, new interest in Christmas Clubs reached its zenith in 2009, according to the Credit Union National Association.

Today, smaller financial services institutions and most credit unions still offer a Christmas Club product. Standard features of a traditional Christmas Club include:

  • A low-interest yield
  • A required minimum balance, usually between $5 to $50
  • In some cases, a maximum balance of a few thousand dollars
  • Fees for early withdrawals, anywhere from $5 to $20 per withdrawal
  • Forfeiture of interest for accounts closed before the end of the term (terms often end in November of the calendar year)
  • A lump sum check or automatic transfer of funds to a spending account in early November
  • FDIC insurance

Is a Christmas Club right for you?

Christmas Clubs are perfect for those who need a little help staying faithful to their savings plan. Traditional clubs make withdrawing funds difficult and expensive, encouraging club members to stay the course.

Some time their savings to take advantage of perks such as cash back rewards. Others choose a Christmas Club to avoid "holiday hangover" - the slew of bills that wind up in their mailbox after the holidays pass - and eliminate overspending.

But smart savers - those with enough will power to stick their cash away for a rainy day (or in this case a white Christmas) - should consider creating their own, personal Christmas Club by opening a high yield savings account and making regular deposits to it. The increased interest rate is a better savings tactic and eliminating penalizing fees for withdrawal means that if a real emergency crops up, quick and easy access to funds is available.

Now how do you save?

If you plan to "join" a Christmas Club or start one of your own, first determine how much you need to save. The best time to figure this out is soon after the previous holiday season.

Gather your receipts, get out your spending notebook, and follow the paper trail. How much did you spend on gifts for friends and family? How much did you spend on entertainment and holiday revelry? What was the cost of your perfect Christmas tree and the decorations that adorned it? You can even determine how much more you spent on utilities to light the house and host your holiday party.

Add it all up. Add 10 percent to cover any unexpected expenses. Now you've got your savings target.

Tips to save more

Start early to save more and more easily. Saving $800 over 12 months means depositing $67 a month and you'll earn interest on that growing balance for a full year. If you wait until June, saving $800 over 6 months doubles that commitment to $134 and earns you less in interest.

Next, select a Christmas Club account - but do so carefully. By comparing account features - interest rate, withdrawal fees, minimum balances - you'll find the savings product that best fits your needs and gives you the most for your money.

Finally, make it automatic. Almost every bank and credit union offers customers and members ways to automatically deposit funds to their savings accounts. By setting up an automatic deduction from your direct deposit paycheck or an automatic transfer once or twice a month, you can "set it and forget it," and then be pleasantly surprised in November when your holiday check arrives.

The original article can be found at in July: The return of the Christmas Club