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Christmas clubs hang on

It's easy to earmark holiday funds without them, but some savers cherish the tradition

Christmas clubs: Those savings plans, designed to be tapped just before the holiday season, often draw snickers from consumer experts because of their low interest earnings and somewhat anachronistic sound.

But the clubs still draw fans.

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At First Citizens Bank in Billings, Mont., for example, Christmas Clubs are highly popular "as much with men as women," according to a bank spokeswoman. "Men are saving money to buy their wives gifts."

It's certainly not the interest earnings that drives the clubs: First Citizens pays an interest rate of just 0.4 percent.

It's really about the ease: A person can open an account with as little as $5, and then deposit as much as he or she wants during the year. Deposits can be shifted from existing accounts or made by using designated coupons.

As far back as the 1930s, folks were earmarking money in special savings accounts for holidays. But the clubs really began to take off in earnest around the middle of the last century, as commercialization drove holiday gift-giving into a costlier realm for many Americans.

Exactly how much money is deposited into Christmas club accounts is unclear. The Federal Reserve, which monitors money flows in the US, does not differentiate among special savings accounts, according to a Fed spokesman. Besides Christmas Club accounts, many financial institutions now offer vacation accounts, generic "holiday" accounts, as well as special accounts earmarked for everything from buying a boat to putting in a new patio.

Tracey Mills, a spokeswoman at the American Bankers Association (ABA) in Washington, says the organization has seen "a slight rise" in the number of banks that offer Christmas club accounts. The average account, Ms. Mills says, contains about $250. An ABA survey in 1999 showed that about 60 percent of banks responding offered such accounts.

"I like my Christmas Club account because it gives me a certain degree of freedom," says "Mary," who has an account through her employer in Scotch Plains, N.J. "Oh, I know I don't make any money on the account. But the funds are always there for me by mid-November. That helps when I hit the department stores for some serious shopping."

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Christmas accounts vary dramatically among financial institutions. While many commercial banks offer them, they are especially popular at savings and loans and credit unions.

At FAA Federal Credit Union, in Memphis, Tenn., for example, accounts can be opened with as little as $5. An account-holder can withdraw or transfer proceeds over to a regular savings account after September. Earlier withdrawals are subject to a fee of $5 each. Funds left in the account carry over to the next year. Interest earnings are 0.9 percent, compounded monthly.

Some institutions offer incentives: At Dupaco Community Credit Union, in Dubuque, Iowa, account-holders receive a scented candle if they save at least $15 a week. "The Christmas club accounts are very, very popular here," says a spokeswoman.

One reason for Dupaco's success: Interest earnings, for the third quarter of 2002, were 2.02 percent. The yield on the fourth quarter has not yet been announced. (Sorry: You must be a member of the credit union to open an account.)

At Prairieland Federal Credit Union, in Normal, Ill., Christmas club accounts earn 1.24 percent. But "members can put in as much as they want," says a spokeswoman.

Still, many consumer experts argue that people are better off just depositing the money in a regular savings account or money-market account, where they presumably would earn a slightly higher interest rate; then they can "earmark" a set amount for the holiday period.

"But that is no fun," laughs Mary, the Christmas Club enthusiast. "A Christmas club account tells you, 'This is it, this is money set aside for Christmas. Period.' "