The Viability of Christmas Club Accounts in Today's Economy
It is possible that your mother set up a Christmas club account, where she would routinely put aside $5 or $10 a week throughout the year in preparation for the holidays. This method of saving was quite popular during the 1970s but it still holds relevance for bank and credit union members. Leslie Copeland, the Chief Strategy Officer of Ascend Federal Credit Union, believes that any method that enables people to save money with ease is necessary. The Christmas club account allows members to save for various expenses, such as vacations, major purchases, or presents.
A Christmas club account is a short-term deposit account, designed to encourage individuals to save money for the holiday season. The rules and requirements for such an account can vary depending on the financial institution. Some accounts offer the opportunity to earn interest, while other accounts resemble Certificates of Deposit (CDs) more closely, with a penalty imposed on withdrawal before a certain date during the holiday season. At Ascend, their Christmas club account is not different from their savings account, with no minimum opening deposit, monthly dividends earned, and ease of access to the account without penalties. Nevertheless, for many, a Christmas club account is more of a psychological tool to encourage saving solely for Christmas presents.
The holidays can be the season where people overspend and find it challenging to put aside money for the future. The Christmas club account is a way to prepare for the holiday season and manage finances better. Mike Schenk, the Chief Economist for the Credit Union National Association, suggests that one way to develop a habit of saving for the holidays is to set up direct deposit, where a portion of your paycheck can be automatically deposited into an account. Having the savings in a separate account can make it easier to avoid spending the funds accidentally and prevent credit card debt crisis after the holidays. Most Christmas club accounts require a small opening deposit, often as little as $10.
Christmas club accounts are typically offered by small banks or community-based institutions, which tends to be more invested in the overall financial health of their customers. However, credit unions remain the champions for this type of savings vehicle, with most members having access to such accounts. Joining a credit union has become easier than ever, and in some cases, individuals can join an organization like the American Consumer Council, which makes them eligible for credit union membership. Schenk advises individuals to shop around and use websites like yourmoneyfurther.com to locate credit unions within their vicinity.
One disadvantage of Christmas club accounts is that the interest earned is generally low, with some accounts paying less than 1% APY. Another drawback is an early withdrawal penalty, which could be an obstacle if the savings have to be used for other purposes. The purpose of the account is to ensure funds are allocated for holiday spending and are separate from any other financial goals an individual may have.
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