Are Xmas savings accounts worth it?
Savers are being urged to plan ahead for Christmas 2009 if they want next year’s festive season to be a merry one.
Despite the fact that Christmas 2008 is under two months away, the looming recession and tigher budgets mean for some households the only way to celebrate in style next year is to start saving now.
A number of providers offer Christmas savings accounts, which are designed to help spread the cost throughout the year through regular monthly payments.
Skipton Building Society has just launched its Christmas Saver Account, which pays a variable rate of 6.75% AER. Savers can put away between £10 and £250 every month between now and 24 November 2009, when the account matures. Although the account is flexible as to the amount paid in, no withdrawals are permitted.
"Christmas is always expensive and in such a gloomy economic climate it makes more sense that ever to save for it,” says Steve Aldous, general manager of sales and marketing at Skipton. “Christmas Saver offers a great rate of interest and is flexible enough to allow for those months when your outgoings are higher than usual.
"By allowing you to save a different amount each month, just as long as it's more than £10, you'll be able to keep saving even if you get that unexpected bill."
Other Christmas accounts on the market include the Dunfermline Building Society’s Christmas Saver, which pays 6.14% AER if you pay at least £10 into the account each month. Instant access to your money is guaranteed, but savers must keep at least £10 in the account at all times.
And finally, Monmouthshire Building Society’s Christmas Saver pays 2.30% AER, but if no withdrawals are made a 3% bonus is added on maturity on 30 November 2009. The minimum monthly deposit is £1 and withdrawals are only permitted in January and December.
Are they worth it?
Rachel Thrussell, head of savings at data provider Moneyfacts, is sceptical as to just how beneficial Christmas savings accounts are.
“For people looking to cut the cost of Christmas, I would suggest they look beyond these ‘special’ accounts,” she says. “They are essentially regular savings accounts but with lower rates and the same, if not more restrictions.”
Barclays currently offers the highest-paying regular savings account at 7.49%, fixed for 12 months if you deposit between £20 and £250 a month by standing order. If need to take some money out within this time, a lower fixed rate of 2.99% is paid in months when you make a withdrawal.
Alternatively, Halifax offers a 7% fixed-rate regular savings account, providing you pay in at least £25 a month by standing order. However, the account will close if you make a withdrawal during the first 12 months of opening the account.
“If you are thinking about a regular savings account, make sure you are comfortable with the amount you want to set aside each month,” says Thrussell. “While you can get some great rates, don’t overextend yourself – otherwise you’ll be penalised.”
Other Xmas schemes
You don’t need to open a savings account to prepare for Christmas.
For example, the Post Office’s Christmas club card scheme allows people to put aside sums from little as £5, over the counter in Post Office branches. Once the card is activated on 1 November 2009, members can spend their balances in high street retailers – including Argos, B&Q, Boots, Halfords, River Island, Sainsbury’s, Threshers, WH Smiths and Woolworths.
But following the collapse of Christmas hamper company Farepak back in 2006, is the club card scheme safe?
“All of our funds are held by the Bank of Ireland, which is regulated by the Irish Financial Regulator, meaning funds fall under the protection of the recent Irish government 100% guarantee,” says Ruth Barker, a spokeswoman for the Post Office.
Suzy Hall, director of the Christmas Pre-Payment Association (CPA), believes Christmas schemes are safe. “It's two years this month since Farepak collapsed and it's really positive to see how much progress has been made in providing people with easy and trusted alternatives," she say.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.