With only Christmas two weeks away, many of us have already begun buying gifts and decorations for the holiday. This is the season where pockets get a little looser, and as such, many people charge things that they probably shouldn’t. Acting as another form of leverage, we are going to discuss the pros and cons of Christmas Club accounts and whether they are worth it for your holiday shopping needs.

What exactly is a Christmas Club account?

Offered for the first time by U.S. banks during the Great Depression, they are basically a short-term savings account that incentivizes account holders to make regular deposits that will accumulate interest. The funds that are placed into this account are not available for access until a predetermined date, which is typically Dec. 1.

Although there may be many different variations on this account, the one thing that holds true is that if you take out the money before the predetermined date, you will lose all the earned interest but you will get hit with a large penalty. However, in this day and age, these accounts are not found very often at larger banks but are typically seen at credit unions.

Pros and cons

First, let’s start with the pros. In comparison to your average savings account, they have a higher annual percentage yield (APY). They also have fewer barriers to entry to get this great APY, allowing you immediate access to the higher rate. And lastly, it can act as a natural barrier to keep your spending habits in check. The threat of the penalties that you could incur if you dipped into the account or tried to pull the money out will typically keep people away from the money until the predetermined date.

If you are going through a credit union, then you need to know that they aren’t covered by the FDIC. Instead, they are covered by the National Credit Union Administration and your account is covered up to $250,000.

Some of the cons of a Christmas Club account is that you can find better APYs elsewhere. One such product available would be signing up for the Capital One 360 Savings Account, which covers 0.75 percent in comparison to the average Christmas Club Account that offers .040 to 0.50 percent. However, you will need to enroll in online banking to have access to these higher APYs.

Other things that can be construed as drawbacks include the need to make a separate deposit into a regular savings account at the financial institution as a prerequisite. This is often seen as another take on a fee, though it isn’t classified as one. And lastly, you should check to make sure if there are any limits. Sometimes, once you hit a certain limit in the account, the APY goes down to a reduced rate.

In sum, there are many advantages to a Christmas Club account. But it really comes down to if you find value in them for your own savings plans. You can probably find a better deal out there if you intend to save quite a bit of money, but nevertheless, these types of accounts can be a great strategy to help curb your spending habits during this time of year.