Christmas is a costly time of year, especially for those with children. There are presents to buy and people to feed and many families struggle to finance Christmas without accumulating debts which they are still paying off long after the festive season has passed. Christmas Clubs offer the chance to save throughout the year meaning that there should be no financial hangover but are they the best way to spread the cost of Christmas?
What is a Christmas Club?
Christmas Clubs are regular savings schemes specifically for Christmas. You pay in throughout the year and then a few weeks before Christmas your savings are released so you can do your shopping. Flexibility in what and how often you can pay in varies and schemes are run by retailers, community groups, the Post Office and Christmas club companies. Clearly the discipline of saving is a positive as is the potential of a debt free New Year but there are disadvantages to Christmas clubs too.
The Downside
With the majority of Christmas clubs you receive gift cards for stores or credit to spend online with particular retailers. This is all very well if everything you are likely to want is available from these organisations but you don’t have the opportunity to spend elsewhere if you want to. Your money is released only late in the year so you could miss out on good deals that arise earlier and your cash is locked in until the release date. The fact that you cannot touch your savings could be an advantage if money generally burns a hole in your pocket but not such a boon if you have an emergency and need the cash. You should also be aware that you will not receive any interest on your savings.
Security
It should also be remembered that Christmas Clubs are not regulated by the Financial Conduct Authority so you will not receive redress from the Financial Services Compensation Scheme if your savings company goes bust. Some Christmas savings clubs are members of the Christmas Prepayment Association (CPA). They have created a code of practice for their members. This includes rules about how their members must look after your money once you’ve paid in to the schemes. They also offer a conciliation service if you have a complaint about one of their members. Before you join a Christmas club, it is a good idea to check that it is a member of the CPA so that you will have some recourse if things go wrong.
Alternatives
Saving throughout the year for Christmas is certainly a good idea but you don’t have to do this via a Christmas club. You will have far more flexibility and security if you open a savings account with a bank or building society. You should also benefit from interest on your investment. With the banks you should be able to pay in as much or as little as you please and access your money when it suits you. You will need the self-control not to spend the cash on other things but when the time comes you will at least be able to shop where you please either online or in the high street. Instead of being tied to buying gifts from a small number of major retailers, you can explore independent gift shops and specialist retailers too and you may be able to get better deals on what you buy.
Article by Sally Stacey