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Christmas Club Savings Accounts: Horribly Outdated

There’s a Ghost of Christmas Past that lingers within the world of personal banking: Christmas club savings accounts.

These accounts – which were pioneered during the Depression – help people save for a large expense, namely, holiday shopping. Each week or month, a fixed amount of money is deducted from your checking account and deposited in your Christmas club savings account. Over the course of the year, the balance grows, and, come October or November, the balance is transferred back into your checking account for holiday spending.

Sounds like a great way to save for gift shopping – and to avoid credit-card debt – right?

Well, not exactly. Christmas club savings accounts — which are usually offered by credit unions and community banks — barely earn any interest. The accounts we found typically offered about 0.50%, though some are even worse. Also, access to your savings (before it’s transferred back to your checking) is usually restricted. Some credit unions that offer Christmas club accounts make exceptions for emergency situations, but large fees typically stand between you and your money.

Sure, we’d rather earn less interest on money we’re saving then have to pay loads of interest once our first post-Christmas credit-card statement comes in. But why not put money aside for Christmas and earn a respectable interest rate?

Well, we can. In fact, it’s pretty easy to replicate the whole Christmas club savings account concept. Find a high-yield savings account — with no fees or minimum balance requirements — that allows free and unlimited transfers from any financial institution. Put aside a little bit of your paycheck each week, then, treat your friends and family (or yourself) come holiday season.

Depending on what bank your checking account is with, you can have money deducted automatically and placed into your savings account; there are several banks that allow unlimited (or loosely-limited) transfers from the financial institution of your choice. And there you have it – your very own Christmas club savings account, Kwanzaa kitty or stash of Hannukah gelt.

Here are a few savings institutions to get you started:

• Union Federal Bank offers a plump 5.31% interest rate on savings accounts. (But if their cluttered and confusing web site is anything like their user interface, I’d recommend banking elsewhere.)

• Savings Square, an e-child of Kirkpatrick Bank, in Edmond, Okla., offers a 5.10% interest rate with no minimum balance and no fees.

• If you’re more interested in household names, E*Trade is a nice balance between a solid interest rate (recently uppped to 5.05% in light of its recent troubles) and name recognition.

Several traditional banks also offer online-only high-yield savings accounts that could work well: HSBC has an online savings account that yields 4.50% annually, while Citi pays up to 4.50% and WaMu’s version yields 4.75%. While they allow varying forms of integration with existing accounts, you may not be able to access your savings account from branch locations.

If you’re afraid you might dip into the account before the holidays, there are probably better ways to resist that urge than putting money in a low-interest bank account that ties your hands with high fees. Feel free to submit your own suggestions in the comments below.

In short, traditional Christmas club savings accounts are more Scrooge than Santa — but the club notion is a good one. Just do it on your own terms.

With that said, have a happy and healthy holiday season. I just finished my wish list for this year, if anyone was wondering…

–Daniel Hay

Illustration: Greater Building Society