A dedicated Christmas club account, often called a Christmas savings account, could help you prepare for the often-expensive holiday. Not only can these accounts help you avoid taking on more debt for the holiday season, but they’re also interest-bearing, so your savings can grow without lifting a finger. But their rates are often very low compared to other deposit accounts, so there are better alternatives to check out.
Christmas club accounts are short-term savings accounts designed for holiday expenses. You earn interest on deposits made into the account during the year. Around October or November, you’ll get access to your balance, usually through a delivered check or a direct deposit into your chosen bank account.
Christmas club accounts can help you avoid borrowing to pay for holiday expenses, and they come with early withdrawal penalties to dissuade you from withdrawing your funds too early. Penalty fees are typically around $10 per withdrawal.
Banks and credit unions often offer Christmas club accounts, but these are usually smaller institutions. It’s best to open them early in the year, preferably in January, so you have more time to save before the holidays. Many accounts allow for weekly or monthly deposits or automatic deposits for seamless savings.
Christmas savings accounts are worth it if you’re frequently tempted to pull cash out of your savings. Americans spend nearly $1,000 each year on holiday gifts, according to a recent Gallup poll(1). So depositing around $90 for 11 months would get you to that typical budget. And with the strict early withdrawal penalties, you’re more likely to think twice before withdrawing your Christmas savings.
Since Christmas savings accounts don’t let you withdraw your money, it’s best to get one if you already have an emergency fund set up with a savings account. That way, you can withdraw your money easily in case of an emergency.
But while Christmas club accounts can help you save, the APYs are often very low, ranging from 0.01% to 0.25%. These rates are lower than the national average of 0.45%, according to the FDIC(2). Due to their low rates, it may be worth considering other accounts like certificates of deposit, high-yield savings accounts (HYSAs) and other investing options, which have more earning potential.
Compare top savings accounts by APY and minimum deposits. Select Compare on up to four accounts to see their features side by side.
Here are a few alternatives to consider if you’re not set on a Christmas savings account:
Setting aside money throughout the year can help take the stress out of budgeting for the holidays and prevent you from racking up credit card debt. But they usually have lower interest rates than $0-fee savings accounts, and you can’t access your money until a certain time. If you won’t be tempted to spend your money on other things, you’ll want to compare more savings account options and go with a free savings account instead.
Apple’s new savings account has a high APY and simple set up, rivaling top competitors.
The Ponce Bank high-yield money market account offers 5.28% APY and comes with no account fee and a low $1 minimum opening deposit.
Chime’s savings account has a solid APY and is free but requires a Chime checking account.
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A compound interest account reinvests your earned interest into your balance. This new balance then continues to earn interest, knowing as compounding.
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Some of the top banks with the highest interest rates are Customers Bank, TAB Bank, Cloud, UFB, Bread, Bask, Upgrade, Varo and more.