This study conducted a comprehensive longitudinal analysis of the December withdrawal phenomenon in Uganda's banking sector, examining withdrawal patterns from 2018 to 2022 and systematically tracing the destination of withdrawn funds from financial intermediation to ultimate expenditure categories. Using a mixed-methods research design, the study collected primary data from 1,847 bank customers across 12 commercial banks representing 65% of the sector's asset base, supplemented by secondary data from Bank of Uganda reports and financial statements. Analytical methods included univariate descriptive statistics, bivariate chi-square and correlation analyses, and sophisticated mixed-effects regression models that accounted for hierarchical data structures and temporal dependencies. The research established three principal findings that addressed critical knowledge gaps regarding seasonal liquidity disruptions in developing economy banking systems. First, the quantitative analysis revealed that customers withdrew an average of UGX 3.85 million (67.8% of pre-withdrawal balances) during a concentrated period approximately 8 days before Christmas, with withdrawal amounts increasing significantly by 15.6% over the study period (p < 0.001) after controlling for demographic and economic factors, demonstrating intensification of the phenomenon beyond inflation effects. Second, the fund destination tracking demonstrated that consumption expenditure dominated withdrawn funds at 59.9% overall (festive expenses 30.4%, school fees 17.7%, household purchases 11.8%), with a statistically significant increasing trend to 62.2% by 2022 (χ² = 12.847, p = 0.012), while investment activities constituted 26.7% (business capital 15.3%, agricultural inputs 8.1%, real estate 3.3%) with marginal declining trends, and informal financial systems absorbed 8.5% of withdrawn funds, indicating that the majority of funds exited productive financial intermediation cycles at least temporarily. Third, mixed-effects multinomial regression models revealed substantial demographic heterogeneity in both withdrawal magnitudes and fund destinations: males withdrew 18.7% more than females and showed 68.7% higher odds of investment destination (OR = 1.687, p < 0.001); tertiary-educated customers withdrew 33.4% more than primary-educated and demonstrated 134.7% higher investment odds (OR = 2.347, p < 0.001); urban customers withdrew 24.3% more but showed 32.9% lower investment odds (OR = 0.671, p < 0.001) compared to rural customers; and business owners withdrew 22.1% more with 189.1% higher investment odds (OR = 2.891, p < 0.001). The intraclass correlation coefficient of 8.2% indicated meaningful bank-level variation in withdrawal patterns beyond customer characteristics, suggesting institutional factors influenced seasonal deposit volatility. These findings carried significant implications for monetary policy formulation, banking sector liquidity management, and financial sector development strategies in Uganda and similar developing economies. The study documented opportunity costs associated with consumption-driven capital flight from formal banking while revealing nuanced patterns where substantial minorities of withdrawn funds served productive investment purposes, particularly among educated, rural, and business-owning segments. The research concluded that the December withdrawal phenomenon reflected deeper structural features of Uganda's economy including persistence of cash-based transactions, cultural practices surrounding festive expenditure, agricultural seasonality, and incomplete integration of informal and formal financial systems, requiring multi-faceted policy responses combining counter-cyclical financial product design, digital payment infrastructure expansion, seasonallyadjusted reserve requirements, and targeted financial literacy interventions to mitigate banking sector liquidity stress while enhancing economic productivity of seasonal fund flows.