posted on 01-20-2020
Updated January 20, 2020

What Are Savings Clubs?

Savings clubs most commonly refer to a special type of account that provides a way to regularly save for a specific goal or event. These accounts historically came with a savings passbook with coupons which helped make the act of saving more convenient and automatic. 

Christmas club accounts are an example of this type of account, which provide a way to save in advance for larger expenditures during the holidays.  

How Do Savings Clubs Work?

When offered by a bank or credit union, the member with a savings club account may have to adhere to a schedule that requires them to put money toward the savings club on a regular basis. While most do not use coupon books due to easy access to online banking, the idea remains the same as savings clubs are meant to make it easy to save towards specific goals. 

Advantages and Disadvantages of Savings Clubs

The most significant advantage of setting up a savings club account is behavioral, as in effect they make saving automatic and similar to paying a bill. In this way savings club accounts force the savers to make regular, normally monthly, contributions to an account towards a specific goal or schedule. In this way, savings clubs in theory should reduce reliance on credit cards and other debt instruments for such purposes. 

One disadvantage, however, is that there may be conditions in place to prevent a member from accessing the funds early. If the savings club generates interest, early withdrawals may force the depositor to sacrifice any of the profits while the funds were in the account. Additionally, failure to make the regularly scheduled installment could result in loss of any interest that might have accumulated.

How Are Social Savings Clubs Different?

A social savings club is meant for a group or organization to open a savings or other deposit account meant to reach a common goal. The funds in the account are the common property of all club members—everyone regularly deposits equal funds and agrees to withdraw from the account at the same time. Close friends or family members planning an expensive trip may utilize such an account, though as with any joint account there are certainly risks. 

Social savings clubs are able to be established with different terms and restrictions, as long as they’re agreed upon by the club members. Banks and credit unions might offer savings club programs for their customers; however, these “clubs” are more than just joint accounts with other customers. The process to open a social savings club account is relatively complex, and fewer banks and credit unions offer these types of accounts. 

The biggest advantage of these types of savings clubs is that they may offer higher interest rates than compared with traditional savings accounts. Clubs are able to offer higher rates because the group’s money is pooled together, often qualifying for the higher rate than the smaller balance each club member deposits on their own.