Halloween is this week: according to my calendar, that means it’s time to start booking tickets home for Thanksgiving, planning my Christmas shopping and generally getting ready for the holidays. It also, unfortunately, means that the time of year when I spend the most money is just starting. I have cards to mail, presents to buy — even dinners to plan. And with the way the economy is looking these days, I’m just not sure how far my holiday dollars are going to stretch.
I know plenty of people are thinking about cutting back on Christmas this year. It’s not anyone’s favorite way to save money, but it is effective. The other options for reducing the impact that the holiday season has on your finances tend to involve saving up throughout the year: Christmas Clubs and other specialized savings accounts are meant to spread out the cost of presents and such throughout the year. Personally, though, I don’t think that such specialized savings account really provide that much benefit. In general, the way that a Christmas Club account works is simple: a certain amount of money is moved from your bank account every week — often around $25. Around Nov. 1, your bank cuts you a check for the amount that has accumulated through the year, and perhaps a small amount of interest. It’s that small amount of interest that bothers me — most banks offering Christmas Club accounts offer minimal returns on that dough that you’re saving up for the holidays.
You’d be better up saving on your own in most cases: putting the money in a higher yielding savings accounts or buying CDs. I’d rather a CD personally — the useful factor of a Christmas Club account depends on getting money out of your account and making it harder to spend. It’s out of sight and out of mind until you actually need it. The tough part about using a CD is the length of time you’re planning to hold it for and the initial balance: many banks require at least $1,000 for a CD, with a minimum term of one month. The interest rates get significantly better the longer you plan to hold a CD. It’s possible to find a combination of terms that work for you, but putting together $1,000 can be problematic.
The option of setting up an automatic withdrawal that mimics a Christmas Club account is also an option. You’ll have to put the money into a normal savings account. That’s not necessarily a problem: I prefer to just have my holiday savings out of reach, but that’s a personal preference. If you’re comfortable keeping that money in your savings account, go for it — it will certainly simplify matters. No matter whether you go with your own savings account or with a CD, you’ll still be getting a better return on your money than the terms of most banks’ Christmas Clubs offer — and you’re still making the holidays easier to pay with in the long run. You can even avoid some credit card debt this way, and that’s never a bad thing.
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