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December 12, 2005

Joining the club | Holiday club accounts are still popular at some of Maine's smaller financial institutions

By Whit Richardson
The Christmas club offered by your local bank may have withdrawn into relative obscurity, but these bank accounts designed to make saving money for the holidays painless are alive and well at many small financial institutions in Maine ˆ— especially the Saco & Biddeford Savings branch in Saco.

The oldest bank in Maine ˆ— it received its first deposit of $3 in 1827 ˆ— Saco & Biddeford Savings Institution has continued to offer a Christmas club to its customers while many banks and credit unions have stopped marketing them or discontinued them altogether. The American Bankers Association, which represents thousands of banks across the country, reported in a 2003 retail banking survey that 35.5% of banks with assets less than $500 million offered Christmas or holiday clubs to customers. John Hall, a public relations officer with the ABA, said that percentage would have been much higher in the past, though he didn't have specific figures.

The concept behind the holiday club, as the accounts are now commonly called, is basic: A member deposits a certain amount of money into the account each week throughout the year. After 12 months, the theory goes, a member won't miss the funds she never had, and a nice lump of money will be ready just in time for the holiday shopping season. Often, there is a modest penalty for early withdrawal ˆ— at Saco & Biddeford Savings, the 1.65% interest rate on the account is forfeited on early withdrawals ˆ— but one that's still enough to act as a deterrent.

Donald Lauzier, marketing director at Saco & Biddeford Savings, believes the bank has offered a holiday club to its customers for more than 100 years. He said the total amount deposited in holiday club accounts at all four branches this year was $624,000. At the Saco branch, for example, the average check issued this year was $922. "It's just something that we feel we should continue to do for our customers," he says of the program.

Saco & Biddeford Savings still promotes the holiday club accounts with an ad campaign in local newspapers every year and with signs in branch lobbies; the bank also offers a free gift to customers who open a holiday club account, a custom many financial institutions dropped years ago. This year it's wrapping paper, but in the past coffee mugs, Christmas ornaments and even Norman Rockwell placemats have been offered.

Many large commercial banks have gone in the other direction, discontinuing holiday clubs altogether. Julie McQuillan, vice president of public affairs at TD Banknorth in Portland, says the firm discontinued its holiday club in January 2000 when it created its Simply Savings account, which McQuillan says is a comparable product with broader appeal. (According to the TD Banknorth website, the Simply Savings account requires customers to make a direct deposit at least monthly and pays annual interest of 0.5%. Unlike a holiday club account, the Simply Savings account does not have a specific maturity date.) She says the bank didn't hear any negative feedback when the holiday club was discontinued.

A generational trend
Greg McBride, senior financial analyst at Bankrate.com, which tracks national bank rates and financial trends, says two factors have contributed to the waning interest in holiday clubs. Many financial institutions have discontinued holiday clubs because the cost banks incur to maintain an account is relatively high compared with the small amount of deposits it attracts.

At Saco & Biddeford Savings, Lauzier admits the free gifts and other costs can dilute profits; however, he says, the real profitability of holiday club accounts hinges on interest rate margins, which vary year to year. (For more on how banks manage interest rate risk, see "Squeeze play," page 32.) "In some years we've either made money or perhaps even lost money," he says. "But this past year the account was slightly profitable."

Another factor in the decline of holiday clubs is that the cost and availability of credit is much different now than it was 15 to 20 years ago. "People can borrow in a variety of different ways and do so at lower rates than was the case a generation ago," says McBride, "and that facilitates a buy-now, pay-later culture, rather than a save-now, buy-later mentality."

Lauzier says the trend in who opens holiday clubs "is very generational, as is evident in the number of these accounts from branch to branch." For example, while the bank's 178-year-old Saco branch mailed out 647 holiday club checks to members in October, the five-year-old South Portland branch sent just 13.

Lynne Belanger, manager of the Saco branch, believes the holiday club is still popular at her branch because its customer base spans generations; many parents, she says, have passed down the holiday club as a necessity when it comes to holiday shopping. "I think in years past people were more strict about budgeting their money," she says. "That's how it all originatedˆ… but you don't find that nowadays."

Armand Paquette, age 83, has opened a Christmas club account at Saco & Biddeford Savings' Saco branch every year for the past 56 years. These days he religiously deposits $40 into the account every week ˆ— though he's quick to point out he didn't even make $40 a week when he first opened a Christmas club in 1949 ˆ— and receives a check for more than $2,000 just in time for the holidays. Paquette says the account makes it easier for him at the end of the year when he needs to buy gifts for his two children and five grandchildren. This year, he says he will even use a small amount from his holiday club check to pay for his vehicle registration in December.

Linda Noone, branch manager in South Portland, says her newer branch attracts a younger customer base, one that is less interested in saving money. Noone, who has worked in the banking industry since 1965, says she has watched the Christmas club become less and less popular over the years. "Back then, Christmas clubs were the thing," she says, referring to her early days in the industry.

Jon Paradise, public affairs manager at the Westbrook-based Maine Credit Union League, which represents 88 credit unions in Maine, says most credit unions in Maine continue to offer holiday clubs to their customers. According to statistics from 46 credit unions in Maine ˆ— about two-thirds of the total ˆ— 46,234 holiday club accounts are open currently, containing nearly $200 million in deposits.

Paradise says the holiday clubs have been a staple to credit unions over the years, adding that their initial popularity grew out of small financial institutions and credit unions, most likely in the aftermath of the Depression and World War II. "People tended to be much more in the saver mode after having nothing," he said. "The most recent generation is more credit-oriented."

But the holiday club has been around longer than that. Back in the lobby of Saco & Biddeford Savings' Saco branch, a local newspaper from 1924 hangs framed in the lobby. It advertises the Saco & Biddeford Savings Christmas club and boasts that customers could deposit 1 cent, 2 cents, 5 cents, 10 cents or more a week.

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