This is guest by Sara Williams who writes the Debt Camel blog, where she looks at everything to do with debt and credit ratings in Britain.
At this time of year millions of people are wishing that they had saved up for Christmas. Perhaps you have told yourself that next year will be different – you will save up for Christmas 2018 throughout the year and be able to enjoy it much more.
Saving money each month for ten months is going to be easier than finding all the money in the last two months… but for many people the key questions is, where should you save it?
In a piggy bank
You can get savings cans you have to open with a can-opener or sealed piggy banks you have to smash.
- Simple – and your children can also see you putting aside money each week. Say what you are doing so they grow up thinking saving is normal and sensible!
- Will you (or your partner?) be tempted to get the money out early?
- It could be stolen.
Standard bank or building society savings accounts
These could be a new current account that pays a good rate of interest, an easy access cash ISA, a savings account or a regular savings account.
- It’s easy to set one up with someone you already bank with.
- You can set up a standing order to feed the account each month when you are paid.
- You may be able to get a good interest rate on a regular savings account – but check for any conditions such as how long you have to save for.
- Your money is safe. Even if your bank went bust, your savings are protected by the FSCS scheme.
- For many people this is just too easy to access! How often will you be tempted to dip into the Christmas pot… will you be disciplined enough to leave it where it is?
You can reduce the problem here by opening an account with a bank, building society of credit union that you don’t currently use. You could still go in and take your money out. But it’s not there as a part of your on-line banking, so it’s more than a simple click away. Will that be enough for you?
These are special Christmas savings schemes – Park is currently the biggest in Britain. You start saving early in the year and put aside some money each week or month. Often this is collected by an agent and you may be encouraged to join by someone who is, or who knows, an agent. In October or November you can withdraw the money, but it is usually in the form of vouchers or store specific spending cards.
- You aren’t tempted to raid your savings half way through the year.
- There is usually a limited list of places you can shop. Even if the list looks good, you may have to decide at the start of the year how much to have from which shop. That restricts your Christmas choices which may be annoying.
- Your money is NOT guaranteed to be safe if the savings club goes bust.
Does that last point sound like a warning you can ignore? In this case the problem is very real.
In 2006 Christmas was ruined for more than 100,000 savers when Farepak went under. It had been operating as a Christmas club for decades. Savers eventually got about a third of their money back, but many months later.
The Christmas Clubs talk about new protections and trusts. They are members of an association which may sound nice, but it isn’t a government regulator. Fundamentally nothing has changed legally. If the bank your savings are in goes bust, you will get your money back, but if the club itself fails – which is a lot more likely – your savings are not FSCS protected.
Supermarket savings schemes
Several of the supermarkets offer special Christmas saving arrangements, sometimes giving you extra bonus vouchers, so it’s like getting interest on your savings.
- You are locking your money away until Christmas.
- You can only spend it at that supermarket, so it won’t cover most presents.
- Your money isn’t protected, as with the Christmas Clubs. Although of course you may decide the chance of a big supermarket going under is very small.
There is also a “casual” version of this, where you don’t put any money aside, but you just save up your ClubCard or Nectar points to use for the big Christmas shop.
Special Christmas account at Credit Unions
Many credit unions offer Christmas savings accounts. For example NHS credit union, Glasgow, Leeds, Wyvern (covers Dorset and Somerset).
- Your money is properly protected by the FSCS
- You can’t be tempted to take it out early.
- You can spend the money on whatever you want.
…. None really! If there is one of these at a credit union you can join (find if you can here), it could work really well for you.