Christmas Savings Clubs promise to spread the cost of Christmas, but why use them when your money may not be properly protected and you’re unlikely to be paid interest?
Four years on from the collapse of Christmas hamper firm Farepak, Christmas Savings Clubs are still attracting customers, promising to spread the cost by collecting small contributions over the course of the year.
But crucially these schemes don’t always pay interest – meaning your money may have depreciated in real terms by the time Santa comes to town.
Worse still, your savings might not be protected in the same way as money held in a bank or building society – so if the company goes bust, your money could go with it. Why on earth do people continue to invest in these schemes?
If you like a savings option that takes the biscuit, join a Club
After the Farepak calamity, a Treasury report investigated why people chose Christmas Savings Clubs over more conventional options – such as savings accounts.
The report noted that the option to have money repaid in the form of vouchers, food and other goods at Christmas time was a big attraction for customers who didn’t trust themselves not to spend their savings over the rest of the year.
It then pointed out that people investing in the clubs were largely on low incomes and often distrustful of mainstream banking – in short, people who could ill-afford to lose their money if their Club went down the plughole.
What are the Christmas Club alternatives?
Fortunately in the years since the collapse of Farepak, a small number of alternative savings options have popped up promising to ‘lock in’ money in much the same way – but with the benefit of added interest and protection from the Financial Services Compensation Scheme.
Some credit Unions – notably Britain’s largest credit union, Glasgow CU – and local building societies are offering Christmas savings plans, paying out dividends to reward diligent savers and penalties to discourage them from spending their savings early.
However, these savings plans aren’t always as widely available or as well known as traditional Christmas Clubs, so much more needs to be done to make them an appealing alternative.
But regardless of this, isn’t it about time people stopped putting their money in Christmas clubs, and started putting their money in serious savings products?