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What Is a Savings Club?
A savings club is a bank account where the account holder contributes regularly toward a goal. These clubs are usually short-term bank accounts set up by a credit union or bank to help customers save for a specific period. Savings clubs often offer incentives to encourage customers to make their intended contributions. For example, withdrawing from a savings club prematurely might lead to the forfeiture of interest previously accrued.
Key Takeaways
- A savings club is a bank or credit union account created to help save for a specific future expense while earning interest.
- Most savings clubs are offered by credit unions and community or small banks.
- Common examples include Christmas clubs and vacation clubs geared towards saving for winter and summer holidays.
- Savings clubs typically charge penalties for early withdrawal or account closure.
How Savings Clubs Work
Many credit unions offer savings clubs. Savings clubs can be established with various terms and restrictions but typically share a schedule where the depositors make regular deposits before a deadline.
You'll likely need to make an initial contribution, typically from $5 to $50. Then, contributions are often drawn from an automatic deduction from payroll or by direct deposit. Customers can ensure steady, consistent progress toward their savings goal and deadline.
The interest rate may be higher than in a typical savings account, but your savings club account may need a minimum balance to earn dividends or interest. Interest in the account is usually compounded, although at intervals that vary by account (monthly, quarterly, or annually).
Early withdrawal from a savings club before the club's deadline may automatically close the account and forfeit some or all interest. You might also pay an account closing fee and an early withdrawal fee.
The savings club deadline is generally associated with a savings goal, such as a planned vacation or the holiday shopping season. Funds in the savings club are typically automatically transferred out at the deadline, but each institution and club works differently. Check in with your credit union or financial institution to read the fine print.
Consider high-yield savings accounts before deciding on a savings club account. Although they usually don't have deadlines and regular deposit requirements, their high interest rates allow you to grow your savings relatively quickly.
Types of Savings Clubs
Credit unions typically offer a variety of savings clubs. Here are some of the most common.
Christmas Club Savings Account
The first Christmas savings club was started by the Carlisle Trust Company of Pennsylvania in 1909. Christmas Clubs are one of the most popular and widely available savings clubs today.
With a Christmas club, also known today as a holiday club, a saver makes regular contributions throughout the year and then withdraws funds to spend on the holidays. Withdrawals may be restricted until a specific date in November or December.
Vacation Savings Club Account
A vacation club helps you save for next year's big trip with automatic contributions over the coming year. As a result, this saving club account type usually has a late spring to early summer withdrawal date.
Tax Club Savings Account
Tax club savings accounts can help build funds to pay your property taxes or federal or state income taxes. Tax club account types may offer twice-annual withdrawal dates, typically in spring and fall.
Other Saving Club Accounts
Depending on your credit union, you may also see the following saving clubs:
- Youth and teen savings club accounts: An alternative to kids' savings accounts
- Education savings club: To save for college tuition
- Home savings club: To save for a home down payment
- DIY savings club: You choose the subject and name the account
A CD with a high interest rate may be a good alternative to a savings club. But you usually need to stash money as a lump sum in a CD for a specific term, unless you find an add-on CD. Like a savings club, CDs usually feature a penalty for early withdrawal.
Savings Club vs. Savings Account
Savings club accounts may offer slightly higher interest than typical savings accounts. However, savings club accounts also often involve penalties for withdrawing funds prematurely and may require automatic contributions. So, the account's actual financial performance depends on how well you adhere to the intended program.
Example of a Savings Club
Justice and Skyler are saving for a long-planned vacation to Hawaii. The pair enrolled in a savings club bank account a year in advance to help fund their trip. Because their particular savings club involves saving for a vacation, it is commonly known as a vacation club account.
The duo contribute $50 per month for 11 months, beginning on June 15. The club ends June 1 of the following year. They earn interest but face penalties if they withdraw their funds before the June 1 end date.
On June 1, Justice and Skyler's vacation funds are transferred into their joint account, along with interest earned during the year. With these savings in hand, they can fund their summer vacation without relying on consumer debt.
Frequently Asked Questions (FAQs)
What Is a Susu Savings Club?
A traditional susu or sou-sou is an informal savings club originating in West Africa and the Caribbean. A group of family and friends pay a fixed, equal amount of money into a common fund on a weekly, bi-weekly, or monthly basis. A treasurer is selected, and a member payment schedule is created. Then, each member gets paid until all susu members receive their share. However, multiple federal and city government agencies warn people to watch out for fake susu savings clubs and scams that lead to losses.
What Are the Disadvantages of Saving With a Savings Club?
A savings club's primary disadvantages include fees for early withdrawals and account closures, required minimums to earn interest, and lack of access to funds until the club's stated deadline. The enforced savings aspect may outweigh these disadvantages. However, it may be wise to ensure you have a significant emergency fund so you don't have to draw on savings club money in a financially urgent situation. Check out high-yield savings accounts, which don't have those restrictions, as an alternative to savings clubs.
Why Do People Join Savings Clubs?
Savings clubs allow people to build funds throughout the year for an established goal, earn interest on savings, and receive funds in time to spend on the goal. Saving for a goal may help avoid racking up credit card debt. Many savings clubs don't have monthly bank account fees and only charge a penalty if you don't follow the savings club's rules.
The Bottom Line
A savings club could help you save toward the holidays, a vacation, tax season, or other goals. Combining automatic contributions, penalties, and a financial goal can help many savers stay on track. To find a savings club, look for a credit union where you qualify to join as a member, and remember to compare rates to high-yield savings accounts and CDs.