Christmas Club Savings Plans Are Here to Stay

With banks steering customers past teller cages and toward impersonal automated teller machines, old-style Christmas Club savings programs might seem ready for the dustbin, along with the free toasters that savings and loans once offered to attract new customers.

The longtime holiday favorite has been waning in popularity for years. But the programs that date back to the turn of the century continue to hang on--with a new name, in many cases, and with an assist from modern technology.

With Christmas 1996 still fresh in their customers’ memories, banks will begin offering their new 1997 versions of Christmas Club programs in January. But at many institutions, they’re now known as Holiday Clubs. And even though the savings plans pale compared with more-lucrative investment vehicles, many institutions are hesitant to drop them. Bank of America, for example, paid out $119 million to Holiday Club members in November.

“This kind of account makes people put away money for the holiday,” said Bank of America spokesman Harvey Radin. “They tend to forget about it until the time of the year arrives when they need it. And in late October or early November, there it is.”

Big banks such as Wells Fargo and Bank of America have eliminated the coupon books, relying instead on electronic fund transfers that automatically move money to the holiday account.

The traditional savings club program--in which patrons receive a coupon book and make direct deposits with a cashier--is largely the province of smaller banks, thrifts and credit unions, particularly in Eastern and Midwestern states.

“The only place that these clubs will survive is at small banks, because big banks don’t like the fact that they have to process some paper,” said Christine Rodgers, a vice president with Rancho Bank in San Dimas, a three-branch institution that offers a Holiday Club program.

“Our customers love it, and it’s one of the reasons we keep getting major accounts from the big banks.”

Holiday clubs made their debut in the U.S. in the early 1900s when a bank officer named Merkel Landis offered consumers 3% interest on a Christmas Club account at his Carlisle, Pa., bank.

Landis printed coupons that tellers handed to customers making monthly deposits. Then just before Christmas, club members redeemed their accumulated coupons and walked out the door flush with cash for the year’s holiday shopping.

Bankers quickly realized that the holiday accounts could bring good cheer to their institutions because customers standing in line to make club deposits were stronger candidates for other products or services.

“It was seen as a cheap and effective form of advertising,” said Frank Mosher, 72, president of a Pennsylvania-based company that prints savings club coupon booklets used by banks. “And, the idea was very useful during the ‘30s when many people didn’t trust banks.”

Holiday club programs are most popular in traditional strongholds in Eastern and Midwestern states, Mosher said: “There never was an awful lot of activity out there past the Mississippi River.”

During 1984, an estimated 23 million club members pulled $6 billion from their Christmas Club accounts at banks, thrifts and credit unions. That year, Bank of America, Chemical Bank and Security Pacific alone wrote combined year-end Christmas Club checks totaling $203.3 million.

But the clubs had begun to fade. In 1987, American Banker, a trade newspaper, stopped printing its annual holiday savings club survey. Mosher, 72, knows that many bankers view holiday savings clubs as an idea whose time has passed.

“My educated guess is that of the nation’s 12,000 to 13,000 banks, only a quarter have Christmas Clubs,” Mosher said. “We used to print 8 to 10 million coupon books. Now it’s down to about 2 million each year.”

Mosher ties the drop in popularity to the rampant growth of credit card debt. But he also notes that big banks frown on programs that require participants to deal with tellers instead of ATMs and electronic fund transfers.

“They do it all electronically, which isn’t what the customer wants,” Mosher said. “Consumers like coupon books and they like seeing a teller.”

Wells Fargo’s “Holiday CD,” for example, is a totally automated system, said spokeswoman Kathleen Shilkret.

Instead of turning cash or checks into tellers, Wells Fargo will automatically deduct a monthly amount from a consumer’s checking or savings account. At the end of October, the accumulated principal and interest automatically is transferred back to the consumer’s active account.

The savings clubs are decidedly low-tech investment alternatives. Rancho Bank offers the same interest rate as its regular passbook savings account. At Wells Fargo, early withdrawals result in penalties.

Despite the banking industry’s ongoing consolidation, Rancho Bank’s Rodgers thinks the holiday savings plans will continue to survive. “Yes, it costs the bank some money to pay for the coupons and you do have additional costs for paperwork. But our customers want this kind of service.”

Mosher, whose father founded the family’s Christmas Club marketing company in 1930, sees a future for the savings plans: “I might not be around in 25 years, but I’m willing to bet that Christmas Clubs will be.”