With the festive season just around the corner, many Brits are inadvertently risking their Christmas savings. Here’s everything you need to know to avoid a grim yuletide.
What are Christmas savings?
Christmas savings are just that: savings you may have set aside to pay for festive gifts, or other costs associated with the ‘most wonderful time of year’.
If you’re the organised type, then you may have started saving for Christmas earlier in the year, through a normal savings account.
If that’s you, then aside from losing out to inflation, your savings are technically safe. That’s because all cash saved in a UK-based saving account has the full £85,000 FSCS savings safety protection. This means that if your bank goes bust, your cash is protected, up to the limit.
How can your Christmas savings be at risk?
Some savers in the UK choose to save in ‘Christmas savings clubs’.
These schemes allow savers to join them early in the year and pay in a set amount each month. As Christmas edges nearer, anything saved is converted into gift cards or vouchers. This usually happens from October onwards, though some schemes release vouchers closer to December.
While these schemes may provide a good way of instilling some savings discipline, they have their drawbacks. Perhaps the biggest drawback is the fact that they do not have any FSCS protection.
This means that if a scheme goes bust, it’s possible you’ll lose all of your Christmas savings. Sadly, such an event has already happened. In 2006, the popular Christmas savings club, Farepak, went into administration. This impacted 100,000 customers, with an average loss of £400 per customer.
It is worth knowing that some Christmas savings clubs now ‘safeguard’ cash on a voluntary basis. This is done by ‘ring-fencing’ customer balances. However, this still doesn’t provide a stone-wall guarantee that customer savings will be safe if another club goes bust in future.
Are there other drawbacks of Christmas savings clubs?
Aside from the lack of savings safety, here are four other drawbacks of Christmas savings clubs.
1. Cancellation charges may apply
If you decide to leave your Christmas savings scheme early, then you may have to pay a cancellation charge. The amount will depend on the scheme, though 5% fees for cancelling gift cards or items ordered aren’t uncommon.
2. You don’t earn interest
An obvious drawback of Christmas savings clubs is the fact they don’t pay any interest on the cash you save in them. While current rates on normal savings accounts are admittedly pitiful, earning a low amount of interest is better than nothing.
3. The choice of retailers may be limited
While it’s fair to point out that a number of Christmas savings clubs may offer gift cards from a choice of retailers, the fact is that any gift card effectively limits where you can spend your cash. So unless you plan to do your Christmas shopping at specific stores and you aren’t bothered about shopping around, this should be considered a big drawback.
4. Holding gift cards could be risky
Anything saved on gift cards isn’t covered by the FSCS. As a result, if a retailer goes bust and you’ve got one of its gift cards, you may struggle to spend it.
A similar event happened a year ago when Arcadia, owner of Debenhams, stipulated that gift card holders could only use them for half of an order’s value after it fell into administration.
Are you looking to save money this Christmas? See our articles revealing five festive buying tips that will help you save money. Also see, how you can avoid spiralling debt this Christmas and ten fantastic free Christmas activities.