Dedicated Savings Accounts Make Budgeting Easier

Virginia C. McGuire
By Virginia C. McGuire 

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A time-honored trick lets many people set aside money for holiday expenses all year — short-term savings accounts called Christmas Clubs.

These accounts, originally pioneered by banks during the Great Depression, are now mostly offered by credit unions and smaller community banks. Some, like the U.S. Postal Service Federal Credit Union, offer Vacation Clubs and Tax Clubs too. But Tiffany Stackhouse, the credit union’s member services supervisor based in Clinton, Maryland, says the Christmas Club is the most popular.

Credit union members can set up the accounts at any time during the year, along with regular transfers from another bank account or direct deposit from a paycheck. Withdrawals are limited and must be made between Oct. 1 and Dec. 31, or else the member incurs a $10 fee. Otherwise, interest and fees are the same as a regular savings account.

Useful accounts

What’s the value of the dedicated accounts?

“It gives the member something to look forward to,” Stackhouse says. Unlike regular savings, club accounts can’t be used as overdraft protection, so it’s harder to deplete them accidentally. “It’s not easy for them to access."

Many people use a similar system without the benefit of special accounts. Online banks like Capital One 360 also allow customers to open multiple accounts and give each a name reflecting its purpose, like buying a car.

Amy Bushatz is a freelance editor for She’s married to a U.S. Army infantry officer, currently stationed at Fort Campbell in Kentucky. Like many military families, Bushatz, her husband and their two children have to be prepared to move at any time, so she maintains a special account to pay for those expenses. She socks away $200 a month, along with windfalls like a recent $1,000 check from the sale of their riding lawnmower. USAA lets Bushatz open as many accounts as she wants and rename them according to their purpose.

Savings cushion

The government will pay for most of the family’s moving expenses in a transfer, but the savings account lets Bushatz dread relocating a little less.

“Uncle Sam is not famous for his speedy reimbursement,” she says. And after four moves in seven years, Bushatz expects to use some of her savings to replace things like bookshelves that can’t survive another trip in the back of a truck.

Bushatz has one other dedicated savings account for taxes. As a contractor, she makes quarterly payments to the Internal Revenue Service.

“My general savings account would take this hit every time I paid quarterly taxes and it made me feel really sad,” she says about the period before she started the dedicated account. Leaving her general savings untouched at tax time makes her feel much better about writing those big checks four times a year.

Dedicated savings accounts are a useful strategy for managing big, regular expenses like holidays, vacations or relocation costs. Club accounts can be best for some, but for people whose bank or credit union doesn’t offer them, it’s possible to jury-rig a comparable system. Then all you need is the discipline to keep adding to the accounts, and to avoid robbing them for other purposes along the way.

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