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Christmas Clubs Can Help You Control Holiday Spending, Avoid Credit Card Debt

Banks, credit unions offer dedicated savings accounts for gifts

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If holiday shopping is sending your credit card bill into the stratosphere, consider opening an old-fashioned Christmas club. Setting aside money in a dedicated savings account can make it easier to budget for gifts and avoid overspending.

Expenses add up as year-end celebrations approach — and you need a plan to manage them. The average consumer expects to spend $998 over the holidays this year, according to the National Retail Federation, down $50 from 2019. The bulk of that ($650) will go to gifts, while the rest will go toward food, decorations and other holiday-related purchases.

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People may swear that they start saving for Christmas in January, but it doesn't always work out. A set of new tires, a lost job or a dead furnace can deplete the best-intentioned savings. Faced with giving little Jimmy a nice holiday card or a new toy, most people go for the toy. And for many people, that means pulling out the plastic. The average American charged $1,325 during the holidays last year, according to MagnifyMoney's annual postholiday survey.

"Half of Americans already have credit card debt, and the average [credit card] balance is about $6,000, so if you're going to pile another thousand dollars on top of that, it's meaningful,” says Ted Rossman, industry analyst at “If you're financing that at 16 percent — the national average credit card rate — and you're only making minimum payments, that's going to keep you in debt for almost five years.” You'll pay about $460 in interest on the extra $1,000 you charged for the holidays, Rossman says.

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Holiday helper

A far better solution is to have cash on hand for the holidays. While it's too late for most people to start saving for holiday shopping this year, you can start saving now for next year. One of the easiest ways is through a holiday savings account, sometimes known as a Christmas club.

Holiday clubs are simple: Your bank or credit union automatically takes a set amount from your checking account at regular intervals (say, every week or every month) and puts it into a savings account. When the holiday season approaches, the money returns to your checking account, and you can use that money for your seasonal shopping. If you started an account in January and put away just $100 a month, you'd have $1,000 at the end of October, plus a bit of interest.

You'll measure your interest in pennies, not dollars, because interest rates are so low: A typical savings account pays 0.08 percent, according to But saving for the holidays is a short-term goal, and you need to keep your money safe. You don't want a 35 percent drawdown in the stock market to affect your holiday plans.

Where to find a holiday club

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Smaller community banks and credit unions are the most likely places to find a traditional holiday club. For example, American Bank & Trust, in Bowling Green, Kentucky, offers its Christmas club account with a minimum deposit of $10. The bank mails you a check for your account balance at the end of October. You'll get charged a $20 penalty, plus loss of interest, if you take your money out early.

First Southern Bank, in Fort Lauderdale, Florida, also offers its Christmas club account for a $10 minimum deposit, and it will match your last deposit, up to $100. The charge for early closing: $10.

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Christmas clubs have long been a popular feature at credit unions. Solano First Federal Credit Union, in Fairfield, California, offers a Christmas club to its members with no minimum initial balance requirement. In mid-November, the money can be transferred to another Solano account or mailed to you. Early withdrawals incur a $10 penalty; membership is open to residents of Solano County and their family members.

What the big banks are offering

Chase offers a more flexible type of savings plan called Autosave. You determine how much you want to save each day, week or month, and direct that savings into savings folders — one for vacation, say, and another for Thanksgiving. You can set up to 50 goals, and the automatic transfers won't happen if they would trigger an overdraft.

Capital One also offers an online account with a free automatic savings option. You can create up to 25 separate accounts for your savings goals. There are no fees or minimum balances for the accounts.

A few other big banks have created innovative savings and buying plans for the holidays, such as the reverse layaway. In regular layaway plans, you have the store set aside something — say, a PlayStation 5 — until the holidays. When you have the $500, you give it to the store, and they give you the PlayStation.

With a reverse layaway, you buy the PlayStation first and agree to pay for it in installments over time — typically six weeks – and pay no interest, or lower interest than you normally would on a credit card.

American Express will let you buy up to 10 purchases of $100 or more for a fixed monthly payment. A $1,000 purchase paid over 24 months, for example, would require a monthly payment of $47.28, which includes a $5.61 monthly fee. The total cost over 24 months would be $1,135, or an annual percentage rate of about 12 percent.

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Similarly, Citi's Flex Loan option lets you turn a credit card purchase into a fixed loan. A $1,000 purchase with 24 months to repay would have a monthly payment of $46, for a total repayment of $1,104. “It has a lower cost and more predictable payment than a credit card, but it's not free,” Rossman says.

Ideally, everyone would save enough for the holidays and not have to go into debt. Sometimes, that just doesn't happen. And sometimes, you have to realize that you just need a bit of help saving for the holidays.

There's nothing wrong with that — if it makes your days just a bit merrier.

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