Long before Mint ever existed, banks and credit began offering holiday-related products meant to remove mental math from gift giving and travel expenses on a tight budget.
The themed accounts are designed to appeal to people who want tools to tackle money flow hiccups either through a small loan or special savings account and come with seasonal names like "Holiday Club" or "It's a Wonderful Loan." The advent of mobile apps and more so-called big data sources are bringing new dimensions to the holiday club concept.
"It's one of the most simple types of financial products that matches a real need," says George Hofheimer, chief research and innovation officer at Filene Research Institute, a consumer finance think tank that also conducts product testing. "There are cash flow issues this time of year."
Many Americans lack an emergency fund, let alone a reservoir for buying presents, traveling home or adding roast beef to the menu. Extra expenses can add stress. In fact, 43% of Americans say they wish they could skip the holiday season because of the financial services strain tied to it, according to a recent survey conducted by Harris Interactive and sponsored by Think Finance, which sells installment loans.
Small holiday loans, which are mostly issued by credit unions that report to members rather than outside stockholders, tend to come with more favorable terms than credit cards. Often issued as signature loans, their APRs typically range from about 5% to 12% with 12 months to pay them off, says Hofheimer.
Holiday club accounts, the lexicon for CD-esque savings accounts, generally let customers set up automated monthly deposits year round, earn a small amount of interest, and can only get depleted at a certain time, typically in October. Simply put: they automate discipline.
The products aren't money makers, but they come with a strong fan base and can generate cross-sale moments.
"They are legacy products that members really want," says Eugene (Gene) Foley, president and chief executive of Harvard University Employees Credit Union, which offers club accounts and holiday loans. "It's an easy way to budget. We would get a black eye for taking either one away."
Fellow financial service providers say the same.
Veridian Credit Union, which has offered holiday loans since 1991, reports that some members ask for the loan before it's promoted. Terms are up to 12 months and the rate can be as low as 6.25%. The credit union originates about 750 loans per year.
Veridian also counts just over 3,000 holiday club savings accounts, which also appeal to certain bank customers.
"Customers come to expect [holiday club accounts] from us," says Marc Piro, first vice president of public relations and marketing products manager at Valley National Bank. People use the product to avoid "being shocked around the holidays," Piro says. "It's a nice savings tool for the entire year."
Despite consumer interest, small dollar loans are hard to make profits on, while goal-oriented savings accounts tend to garner low balances that disappear once a person funds his vision. In other words, they aren't bankers' paradise, which is evident when the clubs offer less interest than other savings products that the financial institution offers.
"We don't make anything," says Harvard University Employees Credit Union's Foley. "It's a total member convenience thing."
In fact, the Cambridge credit union lost revenue on the holiday products prior to tech enhancements. "Doing everything electronic helps the [products] break even," Foley says. "Thank God we can be digital now." The credit union now lets people self-enroll for the holiday products on its website and has saved on paper costs that come with opening accounts at branches. The online loan app, for example, runs loan decisioning software to determine preapprovals and automates the disbursement of funds. Likewise, the club account recommends members fund the accounts when contributions are made via payroll deductions.
The products can, however, offer financial service providers salient data.
Forum Credit Union in Indiana, for one, has noticed a perk gained from certain holiday applicants: leads. "In discussing with members, we might find other opportunities," says Kristi Lowell, vice president brand strategy and development at Forum.
Member interest in Forum's holiday savings club, meanwhile, is encouraging the credit union to explore broadening the concept to "saving for a purpose," where members could set the parameters, says Lowell.
Stessa Cohen, a research analyst at Gartner, says holiday accounts are banker-speak for a certain set of consumer behavior: segmenting funds for specific wishes to track progress more easily than filling out spreadsheets. "Everybody has a lot of goals all the time," says Cohen. "You have to look at it as beyond a savings account."
Some young companies are creating products that let customers segment savings accounts by wishlist.
SmartyPig, for one, already lets people set up automatic transfers to a goal-based savings account (such as Go to Tahiti), share their financial progress on social media sites and receive discounts at partner merchants. Of the goals set through SmartyPig, roughly 7% are set for shopping/holiday gifts, which puts it in the top 10 categories, says Jon Gaskell, a co-founder of the company. SmartyPig also sells services to banks under another brand.