Why an Xmas savings club for 2019 may prove a costly mistake . . .
While most of us have only just finished clearing up after this Christmas, some savvy savers are already putting money away for the next one.
It has been more than a decade since the sudden collapse of Christmas savings club Farepak, which left thousands out of pocket. Yet clubs like it are still very much in business and claim to have better protection in place, with possibly more on the way.
But are they really a smart way of squirrelling away money to pay for your festive celebrations?
some 116,000 savers lost deposits totalling £40million when Farepak went bust in october 2006. It took six years for liquidators to begin refunding customers — who only retrieved half of their lost savings at most.
Yet 13 years on, and the country’s biggest Christmas club, Park, is taking on nearly twice as many new savers as it did ten years ago. In fact, about 4 pc of Britons today have cash or investments in a savings club, according to the uK Financial Capability survey.
Christmas clubs encourage savers to put away a regular amount throughout the year for the festive season. Then, often from november, the cash can be put towards hampers, toys or gift vouchers. But the money is locked away, you do not get any interest and there could be a penalty if you withdraw funds early.
What’s more, this type of scheme is not regulated by the Financial Conduct authority. This means that if the provider goes out of business, savers are not protected by the Financial services Compensation scheme (FsCs) — which covers up to £85,000 per person, per institution.
Martyn James, of complaints site Resolver, says: ‘The only purpose the clubs really serve is to help people on tighter budgets save in a more manageable way. I’d say that given the huge economic uncertainty already on the horizon, the collapse of huge brands on the high street and the relatively unknown status of these firms makes them a really risky bet.’
The Christmas Prepayment association (CPa) — set up after the Farepak collapse — insists that members follow a voluntary code of practice that says customers’ money must be held in a separate trust.
They say this means you should get your money back if something goes wrong — but there is no guarantee of this as companies can, on occasion, take cash out of the trust.
The country’s two biggest clubs — Park and Variety Christmas savings — are both signed up to the CPa. Country Christmas savings Club is also a member.
Yet your money is also tied to certain shops and offers in a Christmas savings club, meaning you have less choice and could miss out on other deals. and if you buy vouchers, there is the risk the retailer will go bust, too.
Michael Royce, proposition manager at the Money advice service, says: ‘It’s a good idea to do your homework and compare what these clubs offer with cash Isas, credit unions, supermarket savings schemes, and bank and building society savings accounts.’
If you put £100 a month into the top easy-access account from Goldman sachs’ online bank Marcus, which pays 1.5 pc, between January and november you would earn an extra £9.50 in interest — and your money is covered by the FsCs if something goes wrong.
some building societies, meanwhile, offer specific Christmas savings accounts.
Monmouthshire Bs’s Christmas saver account, for example, pays up to 1.55pc, while Chorley Bs’s Loyalty santa saver account offers up to 2.5 pc.
Grandmother-of-six helen Boore — who lost £900 in the Farepak collapse — says she could never save with a club again. The care home worker, 56, was only ever able to get back £200. she says: ‘If it did happen again, even though you have greater protection, how long would it take for you to get your money back? It isn’t going to be instantly.’
helen, who lives in oxford with her partner Colin, is still saving every month for Christmas, but now puts away £100 a month in her local credit union. she judges that this is a ‘safe place’ because her money is protected through the FsCs.
Kerry Blackett, 38, from doncaster, has been saving with Park Group for 12 years.
The company had more than 420,000 customers planning for Christmas last year with total orders of about £222 million. It says new sign-ups have grown from 33,000 a year to 61,000 in the past nine years.
Kerry, a married mum of four daughters, puts away £30 every month for festive treats.
she says: ‘They have assured me that they do not have any interaction with the money. They have it in a safe and secure place. It is a brilliant way to save.’
Christmas savings clubs can make money through interest on deposits and also commission from retailers that their customers spend gift vouchers with.
a Park spokesman says: ‘There are many reasons why people use Park Christmas savings to plan their Christmas, but the main reason is being able to put money aside each week or month somewhere they can’t easily dip into to pay for everyday bills.’
In december, the Government announced it was considering new laws to protect consumers who had paid for products before a business became insolvent.
The proposals include guaranteeing Christmas savings clubs can safeguard customers’ money.