December comes with a whole slew of expenses that can really break your budget if you haven't been saving up for them. Between buying gifts, hosting parties, and traveling to visit family, you can easily spend hundreds, or even thousands, of dollars. Unless you have been saving money throughout the year, you will probably end up putting these expenses on a credit card. You'll be stuck paying for them all year next year, or longer, and the interest expenses will add up. Instead of going into debt next year, consider opening a holiday club account to help you reach your savings goals.
How Holiday Club Savings Accounts Work
A holiday club account is a savings account offered by many banks and credit unions. You typically open the account at the beginning of the calendar year and set up automatic contributions to the account on a regular schedule, whether you choose to make them weekly, bi-weekly, monthly, or quarterly. The bank or credit union often pays interest on the balance in the account throughout the year so your savings will grow.
Near the end of the year, you can withdraw the money saved and all of the accrued interest and use this money to make your holiday purchases. Many banks and credit unions charge penalty fees if you withdraw money from your holiday club account before the designated withdrawal period. Each bank or credit union has its own specific details that you need to read and understand before opening the account.
Advantages and Disadvantages
The main advantage to a holiday club account is that it forces you to save money throughout the year for your holiday spending. Because the money is in a separate account that may have early withdrawal penalties, you are much less likely to dip into it than you would be if you just left the money in your checking account or stashed cash in your home. And of course, your holiday club savings has the advantage of helping you avoid accumulating credit card debt while doing your holiday shopping.
Holiday club accounts are not the best choice for everybody, though. For example, if you like to do your shopping throughout the year, you will have trouble if your money is stuck in the account until the fall.