Christmas Club Accounts Have Lost the Magic

“I don’t even know the interest rate on my Christmas club account,” says Los Angeles legal secretary Susie Takata, “but it’s money I don’t see and can’t touch, so I won’t spend it.” Besides, she laughs, “you get such a cute check at the end, with teddy bears on it and a choo-choo train.”

Takata has one of the longest-running, shortest-paying, oddest accounts in banking today, less an investment than a holding tank. Basically, the customer makes set, scheduled deposits, doesn’t get the money back until November, and gets little or no interest--an arrangement that’s one step up from a hole in the mattress. Nevertheless, the Christmas club account has been around for three-quarters of a century, and is only now, says Allan Paro, advertising director for the American Bankers Assn. in Washington, in “the declining part of its life.”

Christmas clubs began at a Carlisle, Pa., bank in 1910 with a special program for Indian schoolchildren, who brought in a few pennies a week, and received a check at year-end. The clubs that followed were were essentially forced savings programs, with coupon books to encourage the regular payments. The coupons also encouraged regular visits to the bank, which gave the clubs an appealing social function, and made them popular with banks as traffic-builders.

The clubs were served by Christmas Club a Corporation (the copyrighted name) in Easton, Pa., which, both then and now, says President John Guinan, “sells financial institutions everything it takes to operate a club”--market research, promotional material, coupon books, everything but the interest on the money. The interest, however, is almost incidental: as Guinan says, Christmas clubs as a product “are not interest-rate sensitive.”

Still Have Appeal

By 1984, there were an estimated 23 million people and $6 billion in Christmas club accounts, but the growth was over. Christmas Club a Corporation says only that the number of coupon books it shipped is “down from 1985,” which was down from 1984. The trade periodical American Banker stopped tracking the product last year.

Nevertheless, Christmas clubs still have appeal, and often the same appeal they always had. Certainly it’s not interest, which is usually the same as passbook accounts, and at 20% of institutions, says Guinan, the rate is zero. These are, after all, small accounts: Most customers pay in $10 to $40 a month, and the average balance at year-end is just over $400. Consumers therefore lose very little by not putting the money in a higher-yield account, and a bank’s gain on such deposits may well be wiped out by the costs of coupon books, premiums and administration, never mind interest.

But customers don’t sign on for the interest. They’re drawn by premiums--stuffed animals at some places, collapsible umbrellas, brass knickknacks (if the bank bought its premiums from Christmas Club a Corporation this year). They’re drawn also by those cute checks, which are themselves often the Christmas gift: at Bank of America, a third of the Christmas clubbers who get checks (rather than direct deposits) have them made out to someone else.

No Minimum Required

In many areas, the appeal is what Paro calls “the formalized procedure of going into the bank, making a deposit, having the coupon taken out of the book, staying for a cup of coffee.” Clubs are still, as earlier, strongest with women (72%) and working-class savers in rural areas, or in the metropolitan equivalent of the small town--mid-city communities with an ethnic, often aging population, says a spokesman for Mellon Bank in Pittsburgh.

The clubs even have some new appeals. As Ken McEldowney, director of San Francisco’s Consumer Action, notes, they’re probably the only savings accounts available now that don’t require at least $100 to open the account and a continuing balance of several hundred to avoid a service charge. And for all the emphasis on regular payments, many accounts have no penalties for early withdrawal, paying interest to either the day of withdrawal--however early--or the last finished quarter.

What penalties pertain may be mild: Mellon Bank charges customers $4 if they’ve made fewer than five of the 10 required payments by October, and $6 if they close the account before its end.

Many institutions also offer direct electronic deposits from other accounts, finding that many customers--Takata, for one--don’t want the money to touch their hands at all. When B of A dropped coupons entirely in 1984, for example, less than a third of its Christmas clubbers were choosing the option.

But institutions that do drop coupons--often gladly, given the extra handling required--may find they’ve tossed out some of the magic: “When they drop the coupon books,” says Guinan, “they have more drop-outs.” Indeed, B of A’s 1985 club membership sank from 239,000 to 183,000. They also lose the regular visits, which “gives us a chance to cross-sell services,” says John Bohanan, vice president of Peoples Bank of Lakeland, Fla.

Probably many bigger banks maintain their Christmas clubs only “because we have for years,” says the Mellon spokesman, “and it’s part of our full-service product mix.” At best, it’s considered, in Security Pacific language, “a good relationship vehicle,” kept just to please regular customers with other “relationships” (read accounts) at the bank.

Certainly big banks don’t promote Christmas clubs, though some features seem eminently promotable. “We make money on it, but I’m not sure it’s the most profitable,” says Warren Branzburg, B of A’s vice president of investment products, “and it doesn’t lend itself to major TV and press advertising.” “To the young marketing professional,” says Guinan, “Christmas clubs don’t have the same appeal as cash advances and special lines of credit.”

As a result, club memberships are generally shrinking (although inflation has made the balances increase). Even Christmas Club a Corporation has already diversified. It now prepares coupon books not just for banks but for cable-TV companies, child support services, and state taxing authorities, all of which require weekly or monthly payments.

A good business, but not exactly the same magic.