The smart ways to pay for Christmas 2018

You may not yet have de-Christmassed but its £20bn price-tag is probably already playing havoc with your money.

At estimated eight million of us will fall behind in our finances this January as a result of Christmas costs, not least because the credit card bill is likely to land before the long awaited paycheck.

With the average individual bill coming in at more than £750 and more than a third of us using credit to cover the costs for last month’s revelry, one in four Brits is keen to do more to save up in advance of next Christmas according to the Money Advice Trust.

But with saving club controversy and painfully low interest rates playing on our minds, what are the best options for those heeding the warnings to “make a plan” for 12 months’ time?

Little and often

The saying goes that to eat the proverbial elephant you have to take small bites. The same is true of the somewhat daunting Christmas budget.

“The key to making Christmas 2018 even more prosperous is to start putting a little aside each month, and to find the best rates available,” says Anna Bowes, director of independent savings advice site Savings Champion.

“Regular saver accounts are a great way to get into a savings discipline and often offer the best rates available. However, the very best tend to be linked to a current account with that provider and will have a 12-month term, so if you are starting today, you’d not have access to the money before Christmas.”

Leeds Building Society, however, has a regular saver which is available to all and allows one easy access withdrawal before maturity – which is 30 December 2018.

One of the best regular saver accounts available is with Nationwide Building Society – and while the term is 12 months, it does offer easy access. It’s Flexclusive Regular Saver is currently paying 5 per cent, although this rate is variable and you can only one if you also have a main current account with them.

“However the Nationwide FlexDirect current account also pays 5 per cent on balances of up to £2,500, so is a really good option to consider too,” adds Bowes. “There are terms and conditions that must be adhered to in order to earn this rate – but it can be rewarding.”

Save £250 per month into the Nationwide Flexclusive Regular Saver and the estimated balance after 12 months would be £3,081.25.

If you are starting to save, then the interest earned is really just the cherry on the top in the early years – the actual discipline of saving on a regular basis is the key to having an extra lump sum next Christmas.

Big money bonus

“However, if you already have savings, by again choosing the best rates of interest, you can enjoy more interest to spend,” she adds.

“If you had placed £85,000 in the NatWest Instant Saver at the beginning of December 2016, you would have had £8.50 in gross interest to spend at Christmas 2017, as opposed to £974.07 if you had monitored and switched to the best easy access account throughout the year.”

Even sticking with the best buy account at the outset – RCI Bank’s Freedom Account – you would have earned £969 before tax.

Fix and prosper

For those who didn’t need access to their savings, a fixed rate bond paying up to 1.40 per cent gross/AER for 12 months would have earned £1,190 in gross interest.

“Rates are better now than they were 12 months ago,” Bowes notes. “If you were to choose a one-year fixed rate bond today, you could earn 1.85 per cent (with the Investec 1 Year Fixed Term Deposit – min £25,000) which will give you £1,572.50 gross when it matures next year.”

The best easy access account is still RCI Bank, which, along with Post Office Money, is currently paying 1.30 per cent. If that rate were to remain the same between now and next Christmas your £85,000 would earn £1,105 gross over the next 12 months.

Christmas clubs

But what of the Noughties classic – the Christmas saving club. They are still out there, but vary considerably in structure and protection.

“The idea is that you save throughout the year and you can spend your money from November onwards. You may be able to get earlier access, but there could be a penalty – and any bonus you get is paid in November and linked to the amount on your account then,” warns Sarah Pennells of Savvywoman.co.uk.

“Supermarket Christmas savings schemes are the most generous. Tesco’s Clubcard Savings Scheme pays a bonus equivalent to up to 6 per cent in interest while Asda and Co-op pay a bonus of up to around 4 per cent.

With these schemes though, you have to keep tight hold of your paperwork. If you lose your Asda card and you’ve not registered it, or you lose your Co-op stamp book, the money you’ve saved is gone. Your savings will be held in ring-fenced accounts, but it’s not protected in the way bank and building society savings are.

Credit unions

Run by and for members, several of these community savings schemes offer Christmas accounts. Your money is protected by the UK’s savings compensation scheme up to £85,000 per credit union and you may get a dividend. The only problem is you won’t usually know how much it will be in advance and some credit unions are paying dividends of below 1 per cent.

Courting controversy

“Farepak going bust in 2006 put traditional Christmas savings clubs in the spotlight for all the wrong reasons as hundreds of thousands of people lost money,” says Pennells. “The two big Christmas savings clubs, Park and Variety, are members of the Christmas Prepayment Association (set up after Farepak collapsed). They keep money saved in ring-fenced accounts.

“Unlike the supermarkets, there’s no bonus. You can use your savings to buy food hampers, gift cards or toys. But if you buy gift cards and the shop issuing them goes bust, you could lose money on your card.

“The supermarket schemes are the most generous so if you’re loyal to one store it could be worth saving. If you want the best protection for your cash, pick a credit union.”