Guest Author - Reshma Vyas
Originating in 1909 and popularized during the Great Depression, Christmas Club Accounts are enjoying renewed interest among a growing number of consumers as an effortless way to save for the holidays. Having a “comfortable” reserve of cash savings can alleviate much of the stress and anxiety that often accompany the holiday season. There are significant benefits to opening a Christmas Club Account or Holiday Club Savings Account:
• Even though it is a “short-term” account, you can still basically save all year long. Having more time to save, means you can save at your own pace and plan your holiday budget without having to worry about not being able to meet your savings goal.
• Provides a systematic and disciplined approach for saving money on a regular basis. You can make convenient weekly, monthly or bimonthly deposits through payroll deductions or an automatic transfer from your checking or savings account.
• Generally requires a low minimum opening deposit such as $5.00, $10.00, $25.00 or $50.00. Some banks even allow an account to be opened with $1.00.
• You can use the account to pay for all holiday-related expenses including gifts, home entertaining, party supplies, stationary, vacation or other seasonal recreational and social activities.
• Avoid getting saddled with post-holiday high interest store and credit card debt.
Although, practically every bank or credit union offers a Christmas Club Account or Holiday Club Savings Account, it still pays to shop around for the best deals. The features, benefits, terms and conditions of Christmas Club Accounts and Holiday Club Savings Accounts can differ widely among credit unions, regional and community banks. Some credit unions and banks may offer a “special” interest rate as an incentive. As you do your comparison shopping, you will have many questions and concerns:
1. Does the bank charge a fee for opening the account? Some banking institutions do assess a nominal fee (e.g., $5.00).
2. What are the stipulations and fees pertaining to withdrawals? Never open an account until have you read the fine print. The rules can vary tremendously among banking institutions and credit unions. Some banks will not let you withdraw the money before the scheduled date of maturity without assessing a fee. The hefty fees for early withdrawals provide an excellent incentive to leave the money in the account until the maturity date. Accrued interest may be forfeited on accounts that are closed before maturity.
3. The interest rate and the APY (Annual Percentage Yield). Even though interest rates are pitifully low, earning even 1% is better than earning nothing at all. Compare the interest rates and the APY to determine what the account will actually earn. You will also want to know if the interest rate is fixed or variable. If it is variable, the rate and the APY will be subject to change after you have opened your account. Obviously, you will be keen to know how the interest rate is calculated and compounded and when it is paid to your account. Some banks calculate the interest utilizing the average daily balance method. Depending on the bank, the interest may be compounded daily or quarterly. Some banks may pay a variable interest which is calculated daily and paid semi-annually to the account. Some banks may not compound interest on the account and will pay the accrued interest on the maturity date (e.g., the last day of October or the first day of November).
4. What are the fees for transfers, if any? Some banks may charge a fee for excessive transfers (those that exceed the allowed minimum).
5. The maximum balance you can have in the account (e.g., $5000).
6. Is there a service charge for the account? If the account is closed before the date of maturity, some banks may impose a service fee.
7. What is the minimum account balance? You may be required to maintain the minimum balance in order to earn the APY.
8. Is there a monthly maintenance fee? Look for accounts that do not charge a monthly maintenance fee.
9. Does it offer free online banking?
10. What is the date of maturity for the account? Generally, sometime in October or November, the balance will be sent to you in a check or it can be directly deposited into your existing checking or savings account at the bank or credit union.
11. Check the fees for overdraft transfer.
12. Is it FDIC insured?
A Christmas Club Account or Holiday Club Savings Account can help you get an organized start on budgeting for the holidays. Many banks will automatically renew the account so you can save for next season. Usually, you have 10 calendar days after the date of maturity to withdraw the funds without penalty, discontinue the savings plan or change the amount of deductions. When it comes to selecting the right Christmas Club Account or Holiday Club Savings Account, you may want to look for one with low, minimal fees, at least one free withdrawal, direct deposit, no minimum balance requirement and a competitive interest rate.
For informational purposes and not intended as advice.