What Is a Christmas Club Account?

Child holding a gift hugging her father who's wearing a Santa hat

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A Christmas club account is a savings account dedicated to holiday spending. It has a short life span, usually less than one year. You can use a Christmas club account to automate your savings and help take some of the financial stress out of the holiday season.

A Christmas club account is a savings account dedicated to holiday spending. It has a short life span, usually less than one year. You can use a Christmas club account to automate your savings and help take some of the financial stress out of the holiday season. 

Definition of a Christmas Club Account

A Christmas club account is a short-term savings account that’s specifically intended for holiday spending. It can help you save the money you need to pay for gifts, outings, outfits, travel, and other holiday-related expenses.

  • Alternate names: Holiday club account, holiday savings account, Christmas savings account

Of course, you don't have to spend that money on the holidays. No one will be reviewing your purchases come January to determine if your expenditures qualified as “holiday spending.” You can use the money for whatever you need it for during that time. 

Christmas club accounts made their debut in 1909 when The Carlisle Trust Company of Pennsylvania began to offer them. These accounts became more popular during the Great Depression as they incentivized people to save for the holidays, even during difficult times.

You usually don’t need a lot of money to open a Christmas club account. Many financial institutions require a deposit as small as $5.

How a Christmas Club Account Works

You can open a Christmas club account at a bank or credit union at the beginning of the year, preferably in January. You’ll then make consistent payments that can be weekly, bi-weekly, or monthly, and they can come directly from your paycheck. It all depends on your budget and preferences. 

Not every financial institution offers Christmas club accounts so you may have to shop around to find one that meets your needs. And nothing technically stops you from opening a run-of-the-mill savings account that you can withdraw from according to your needs. Compare interest rates to determine which is really the better option for you. For example, the average annual percentage yield (APY) on regular savings accounts was 0.06% as of September 2021. On the other hand, Founders Federal Credit Union paid 0.15% APY on a Christmas Club Account in September 2021.

Pros and Cons of a Christmas Club Account

  • Makes holiday saving easier

  • Helps avoid credit card debt

  • Most accounts only allow withdrawals during a certain time

  • Saving limits are common

Pros Explained

  • Makes holiday saving easier: A Christmas club account can simplify the process if you struggle to save money for the holidays. You can set up automatic transfers and “set it and forget it” until you need the money.
  • Helps avoid credit card debt: It’s not uncommon for people to charge holiday purchases to their credit cards and accumulate debt. You won’t have to charge everything to your card to enjoy the holidays with a Christmas club account.

Cons Explained

  • Most accounts only allow withdrawals during a certain time: Christmas club accounts may only allow you to withdraw money when your term is up, typically in October or November. You’ll likely be charged a penalty, such as $15 if you decide to take the funds out before your withdrawal period is over.
  • Saving limits are common: Christmas club accounts usually have savings limits, such as up to $10,000, so you may not be able to save as much as you’d like.

You may be better off with a traditional savings account if you want the freedom to take your money out at any time during the year. However, the motivation of a penalty on a Christmas club account may be worth it if you’re worried you won’t stick to a savings plan.

Alternatives to a Christmas Club Account

Budgeting is the first step in setting yourself up for success when it comes time for holiday spending. Consider how much money you need and then start saving it, whether in an account or just in an envelope. Here are a few other alternatives to consider if a Christmas club account isn’t right for you.

Savings Account 

You can open a regular savings account at your bank or credit union. Label it “holiday spending” and contribute as much or as little money as you’d like. You can set up automatic transfers from your checking account so you don’t forget.

Certificate of Deposit (CD)

A CD is a savings account that holds a fixed amount of money for a predetermined period of time and pays more interest than a savings account. You can open a short-term CD, such as a six-month CD, deposit your cash into it, and keep it locked up until the holiday season arrives. The downfall with this option is that you’ll need the full amount of money to open the CD upfront. 

Layaway or Buy-Now-Pay-Later Plan

A layaway plan may be your best bet if you want to make a big-ticket holiday purchase like a television or a computer. Many stores will allow you to pay off your items in installments for free, or for just a small charge. Some stores also partner with buy-now-pay-later (BNPL) providers, which allow you to break up your purchase into a few payments over time. Whatever you do, make sure you read the fine print before you commit to a layaway or BNPL plan. 

Credit Card Rewards

Do some research to find the best credit cards for your spending habits. You may be able to rack up and use cash back, gift cards, airfare points, or other rewards toward your holiday spending. 

Key Takeaways

  • Christmas club accounts are offered by some credit unions and banks, and they can help you save for the holiday season.
  • These accounts help you save specifically for holiday-related expenses, but they can also come with savings limits and penalties for early withdrawals.
  • Alternatives to Christmas club accounts include regular savings accounts, CDs, layaway and buy-now-pay-later (BNPL) plans, and credit card rewards. 

Article Sources

  1. Library of Congress. "Saving for the Holidays the Old-Fashioned Way." Accessed Sept. 27, 2021.

  2. German American Bank. "Christmas Club." Accessed Sept. 27, 2021.

  3. FDIC. "National Rates and Rate Caps." Sept. 27, 2021.

  4. Founders Federal Credit Union. "Christmas Club Account." Accessed Sept. 27, 2021.

  5. Rockhold Bank. "Christmas Club." Accessed Sept. 27, 2021.

  6. Meritrust Credit Union. "Club Accounts." Accessed Sept. 27, 2021.