Once upon a time, harried Christmas shoppers found ways to avoid nasty credit card debt during the holiday season by depositing a little bit of cash every week into an interest-earning Christmas club account at their local bank. Using these convenient savings plans, generous gifters would wind up with a bank check just in time for lavish holiday shopping deals. Some Christmas club savers opened accounts for lucky recipients and simply handed them checks in lieu of gaily wrapped boxes filled with treasures.
Christmas clubs, short term savings opportunities set up by financial institutions to encourage saving, are a convenient way to prepare for the holiday season and still feel solvent in the January aftermath. But are Christmas clubs the best way to make your holidays a little less stressful? Let's make a list, and check it twice, about the pros and cons of Christmas clubs in your holiday future.
For most of us, taking a few dollars every week and putting it towards our holiday shopping seems like a perfect and simple solution. Just like paying a regular bill, you can mentally steel yourself to pay into the account; people tend not to fritter away the money when they know it has a set purpose. For those who need the extra impetus and lack the self-discipline, knowing that you have to make regular payments into your account helps to keep savings on track. There is no contesting that a saving plan towards major purchases and other expenditures is wise. And Christmas club accounts are generally interest-earning accounts -- just one more plus!
Christmas club accounts were very popular back in the '60s and '70s, when interest rates seemed to make more of a difference. Today, many institutions still offer them and there are still customers who like the appeal of proactive saving, but other investments and savings plans are quickly taking the place of the Christmas club.
Do-it-yourself alternates may include weekly progressive deposits in a cookie jar ($1 the first week, $2 the second and so forth through the 52nd week for a total of $1,378 -- others will work backwards starting with $52 and going down). Keeping cash readily accessible can prove to be too much of a temptation for some and as low as bank interest may be, there is none at all in the cookie-jar method.
Alternatively, savers can earmark direct deposit payroll deductions into a bank's available saving plans and withdraw a reasonable shopping amount before heading to the malls; pre-scheduling the direct deposits helps to ensure money is put away on a regular basis. Different banks have different rules for their savings accounts such as minimum deposits, fees and varying interest rates ranging from 0.1 percent to 1 percent. Online direct deposit accounts usually offer the high end of interest earnings. Investors could choose money market accounts if they have enough to leave in savings even after the shopping is over. Money markets often limit the amount of monthly transactions, which could help the savers leave their money untouched until needed. Check with your local bank or credit union for their rules.
Whatever system you feel is best for you, avoiding credit card debt is the most appealing.