When savings club Farepak went into administration, Christmas wasn’t just delayed for thousands back in 2006, it didn’t come at all. Now it looks like savers will get some compensation, but is it enough?
Around 123,000 people lost £40 million in savings when Farepak went pop. Many were on low incomes and used Farepak’s savings scheme to squirrel away cash for their children or grandchildren’s Christmas presents, or help pay for the festive season.
Aside from the greed and incompetence of its directors – nine of whom are subjects of disqualification proceedings brought by the Insolvency Service this week – the problem with Farepak is that it wasn’t a regulated provider under the financial services legislation.
With luck, the savers who lost out will recoup 15p for every pound they saved. That’s not much, but it’s better than nothing.
No protection with Christmas Clubs
Christmas Clubs aren’t covered by the Financial Services Authority, so if they go under, you can’t take the matter to the Financial Services Compensation Scheme (FSCS). And they won’t pay you interest on the cash you deposit with them.
At the tail-end of last year our Conversation on Christmas Clubs elicited interesting comments which agreed that giving money to unregulated companies is far from an ideal solution.
Gerard Phelan said: ‘My Grandmother called such Christmas Clubs “diddleum clubs”. She explained that she had seen so many examples of previously highly-regarded men and women who had vanished just before Christmas with the balance of the Christmas Club [savings], whose members found they had been well and truly “diddled”.’
Credit unions offer a solution
A far better way to save for Christmas would be to put your money in a Credit Union savings account. Not only will this put your money out of the way (out of sight, out of mind, if you like), it’ll earn interest, and if the worst happens, you’ll have access to the Financial Services Compensation Scheme.
Given that there seems to be a lack of desire to regulate Christmas Clubs that looks like to be your only option. Would you give your savings to a company that has no protection for your money?