Christmas Club

What Is a Christmas Club?

A Christmas club, also called a holiday club account, is a type of savings account in which people make routine deposits throughout the year. The accumulated savings are then withdrawn before the holiday season to provide funds for holiday shopping and other expenses, like travel.

How Christmas Clubs Work

The point of a Christmas club account is to automate savings throughout the year in advance of the holiday season. Participants can choose to have the deposited funds deducted from their paychecks automatically. In many cases, the money is transferred into a customer's other account, such as a checking or savings account, on Nov. 1 of each year.

These accounts help participants avoid the financial stress associated with holiday shopping and other related expenses like travel. Saving this money throughout the year can keep people from going into credit card debt to pay for gifts. It can also help enforce a holiday budget.

Similar bank accounts are available to help save for other goals, such as funding a vacation. These so-called "vacation club accounts" allow savers to direct deposit a portion of their paycheck each month into the account. Many of these accounts release the funds in the spring or early summer, in time for summer vacations.

If you withdraw funds from a Christmas club account early, some banks and credit unions will charge a penalty and you also could lose any interest earned.

Special Considerations

Although the branding and incentives of Christmas club — and similar — accounts may help savers stay motivated to achieve their goals and avoid debt, the accounts themselves typically do not pay particularly high interest. In many cases, other types of savings accounts may help people save more efficiently and earn higher interest. For this reason, customers should be careful to explore their alternatives before committing to a Christmas club or vacation club account.

History of Christmas Clubs

It is thought that the first Christmas club was launched by the Carlisle Trust Company in 1909. The then-treasurer of the company, Merkel Landis, launched the club with roughly 350 members who contributed an average of $28 each.

These accounts were popular in the 1960s and 1970s, but have become less common in recent years. Today, they are more commonly offered through smaller local credit unions and community banks.

Real World Example of a Christmas Club

A modern example is the Christmas Club offered by CDC Federal Credit Union in Atlanta. It is available to customers with initial contributions as low as $25. The account allows participants to allocate a portion of each paycheck, with the balance distributed back to them on Nov. 1. The account has no fees, provided that the user does not withdraw funds prior to Nov. 1.