HOLIDAY SPENDING Thrifty savers pick Christmas clubs

By KARA McGUIRE
MINNEAPOLIS-ST. PAUL STAR TRIBUNE
Before you get carried away with holiday shopping, stop to think how you're going to pay for those holiday gifts and decorations. Credit cards let you shop now and pay later, but who wants the headache of opening those January bills?
There is a better way to pay. And an easy way for those of us less-disciplined types to save year-round for the gift-giving season.
Christmas club accounts, or holiday savings accounts, are designed to let you regularly sock away small sums all year so you have money at the ready to buy presents. The accounts earn a small amount of interest each day, and come late October, the bank or credit union sends a check for your deposits plus interest. Cash the check, hit the mall, and when the money's spent, you're through. Sounds refreshingly simple, doesn't it?
Yet the accounts are underused. According to the Credit Union National Association, three out of four credit unions offer such accounts. But how many people do you know who have one?
Most who do are older and have used them for years. Or else they live on a tight budget and have small kids to surprise.
They make sense
But I think the accounts make a lot of sense for college students, young workers, or anyone who's still paying for presents they bought in 2005, will pay with plastic in 2006, and resolves to make a change in 2007.
Kelly Heath-Griffin agrees. She started her account at 17, when she began working at a credit union. Before the holiday savings account "I always seemed to be low on cash." But now that she saves 20 a paycheck, she has a few hundred dollars come Christmas time.
She thinks more people her age don't use them because they have no idea they exist. But Noah Wilcox, a vice president with Grand Rapids State Bank in Grand Rapids, Minn., thinks the younger generation wants "more, better, faster and they want liquid dollars."
Another reason could be the measly interest rates. Most earn 2 percent interest or less. But think of it this way: You'll be much better off earning a little interest rather than paying a lot of interest to credit-card companies.
Save 21.75 every other week starting today, and you'll have 565 -- the average amount consumers spent in 2005 for holiday presents -- to use in 2007, plus interest.
Comparison
But charge the purchases at 14-percent interest and pay just the minimum and it will take you almost five years and cost you nearly 200 in interest.
Holiday account caveats:
Most holiday accounts penalize you for taking out cash during the year. You may have to forfeit any interest payments, be charged a small fee, or close the account entirely.
Penalties are an "intentional slap on the wrist to try and enforce the discipline (customers) are wanting from us," explained Todd Barduson, spokesman for Twin City Co-ops Federal Credit Union.
Make a withdrawal to buy yourself a CD one month and a pair of jeans the next and "come November, there's no savings," Wilcox warned.
He learned that the hard way. When he was a boy, he once took money he was saving to buy Christmas presents for his family and bought himself a bike.
"I was pretty bummed out come Christmas time when I made my parents a card and had to say 'I wanted to give you something and I couldn't,"' Wilcox said.
He thinks holiday accounts are a great tool for parents to use to teach kids not only about the value of compound interest, but also the value of giving.