Editorial Policy

The True Value of a Christmas Savings Club

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By Eva Norlyk Smith, Ph.D.
December 10, 2011

QDear Eva,
My local bank been has pushing their Christmas club savings program heavily this year and I’m thinking about signing up for it. Are Christmas clubs a good deal? Or am I better off just using a regular savings account to save for Christmas next year? — Marie

ADear Marie,
How does that old Mary Poppins song go? “With a spoonful of sugar, the medicine goes down … ” Indeed.

Saving money is never as fun as spending it. But Christmas clubs can definitely help make the medicine go down a little easier.

A time-honored tradition, Christmas clubs are facing a resurgence during the economic downturn, after having been all but forgotten in our credit card-addicted culture.

The concept of Christmas clubs dates back to the Great Depression of the 1930s, and it’s a simple one: Have money automatically drawn from your bank account and put into a savings account each month so that when Christmas comes, you can enjoy the season without facing the usual holiday debt hangover. Ask Eva

Are Christmas clubs a good deal? Well, one thing is for sure: you won’t get rich on interest earnings. Interest rates are down on all savings accounts, and even the best Christmas club savings account will pay little more than 1 percent interest on the savings. Most will pay much less than that.

Yet, compare those interest earnings to the up to 22.99 percent APR in interest expenses you could end up paying if you charge your holiday shopping to a credit card. Suddenly, the interest earnings on those Christmas clubs savings look a whole lot better, yes?

Saving on credit card interest is just one of the many benefits afforded by Christmas clubs. Saving ahead takes the stress out of the holidays and shields you from facing that mounting pile of credit card bills come January. Avoiding credit cards altogether during the holidays will also make you spend less: It’s a well-researched fact that most people are more prone to impulse purchases and overspending when they shop with plastic.

The real value of a Christmas club savings program, however, is a far more intangible one: Participating in a Christmas club will help you build a habit of saving money each month. And that is, as the old MasterCard slogan goes, priceless.

Could you use another savings account? Yes, of course, but most people won’t. Most of us start the New Year with resolutions to spend less and save more. Yet, for most of us, following through on that resolve turns out to be much more difficult than we ever imagined.

There is something about making a commitment and being on an automatic withdrawal schedule that helps create a momentum to actually make those payments into the savings account each month. This includes those months when you feel you really don’t have the money (which for most people will be, well, pretty much every month).

Building a savings habit is a long-term process, and participating in a Christmas club savings program is a good place to start. It forces you to make choices between spending and saving each month.

As the balance in the account grows, it also empowers you with the confidence that, yes, indeed, you actually can build up savings. If you have kids, setting up a Christmas club account for them can be a great way to help build savings habits early on as well.

The way to build new lifestyle habits is always one small step at a time. As saving in the Christmas club becomes routine, chances are that you will find the confidence to tackle bigger savings goals over time. And perhaps, eventually, you might join that club of strange people who actually like saving as much as (or more than) spending. And in the long run, that might just save you a lot of financial headaches. How is that for a Christmas story?

Last but not least, do shop around and read the terms carefully. All Christmas clubs feature low interest rates, but check to make sure you know the terms for when the funds can be accessed and any early withdrawal penalties, should you need the money early.