What Is a Savings Club?

A savings club is a type of bank account in which the account holder makes regular contributions toward a predetermined goal. A typical example is so-called Christmas clubs, in which the customer makes regular contributions throughout the year and withdraws the amount saved before the Christmas holidays.

These clubs are usually short-term bank accounts set up by a credit union or bank to help their customers save for a specific period. Savings clubs, like a Christmas club, connected to financial institutions often involve various incentives designed to encourage their customers to follow through with their intended contributions. For example, withdrawing from the savings club prematurely might lead to the forfeiture of interest previously accrued.

How Savings Clubs Work

Savings clubs can be established with various terms and restrictions. However, they typically share a schedule in which the depositor must put forward regular deposits before a specified date is reached. This date is generally associated with a savings goal, such as a planned vacation or the holiday shopping season.

The deposits are often drawn from the depositor's employment income, such as through a deduction from their payroll deposits. In doing so, customers can ensure that they are consistent in steadily progressing toward their savings goal with an end-date.

Savings Club vs. Savings Account

Savings club accounts may offer slightly higher interest than a typical savings account. However, they also often involve penalties for withdrawing funds prematurely or failing to make a scheduled contribution. Therefore, the account's actual financial performance will depend on how closely the depositor adheres to the intended program, like a vacation club.

In some cases, the term "savings club" may be used to describe a joint account involving more than two account holders. These relatively rare circumstances may be used in situations where a group of people wishes to save together for a shared expense, such as a group vacation. In this case, members will typically deposit the same amount into the account over set time intervals, such as once per month.

Depending on whether a traditional bank is involved, these kinds of informal savings clubs may, in fact, not involve interest payments at all. Instead, they might be used privately among individuals who wish to "put away" funds for future use.

Example of a Savings Club

Let's say two people, Justice and Sklyer, are saving for a long-planned vacation to Hawaii. The pair decided to start 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.

Under the terms of their vacation club account, they agree to each deposit $50 per month for 12 months, beginning on Jan. 1 and ending on Dec. 31. By depositing their money at the bank, they can earn interest on their deposits. However, they also face penalties if they withdraw their funds before the Dec. 31 end date. Similarly, they are penalized if they fail to make one of their scheduled monthly contributions.

Shortly following Dec. 31, Justice and Skyler receive a check in the mail for the funds they have saved, along with interest earned during the year. With these savings in hand, they can fund their vacation without relying on consumer debt.