Start Saving For Christmas 2007!

Although it's too late to begin saving for this Xmas, these accounts pay top rates of interest for the next 12 months.

With Christmas just over a month away, our annual round of festive splurging is about to move into full swing. According to independent financial researcher Moneyfacts, we each spend £600 on Christmas presents and festivities, which is a lot of loot!

Sadly, it'll be a cruel Christmas for customers of disgraced hamper/voucher firm Farepak, which collapsed last month. This failed firm swallowed up around £40 million, which is the hard-earned savings of 150,000 of the UK's poorest families. I'm very angry about the failure of Farepak, especially as a bank in which I'm a shareholder (Halifax/Bank of Scotland) is involved. Shame on both firms!

However, I have one question about the Farepak disaster: why would anyone bother handing over money to this or similar Christmas-savings plans? After all, Farepak wasn't a bank or licensed deposit-taker, so it didn't pay any interest to its customers (most of which handed over just a few pounds each week or month).

In truth, Farepak customers would have been much better off squirreling away a few pounds each month in a Best Buy savings account, in order to earn a little extra interest on their Christmas cash. What's more, they'd have enjoyed the protection of the Financial Services Compensation Scheme, which compensates depositors of failed financial firms.

Naturally, the sooner you start saving, the better off you'll be. Indeed, if you can start saving for Christmas 2007 now, you can earn the highest rates of interest on offer, thanks to regular-savings accounts. By saving a minimum or fixed amount for twelve consecutive months, you can earn before-tax rates of interest which can exceed 8% a year, as the following table reveals:

Source: Moneyfacts, 20/11/06

For disciplined savers with at least £90 a month to spare, the Ipswich BS account is the clear winner. People of more modest means can start saving with just £10 a month at the Yorkshire BS and Scarborough BS, or £20 at the Principality BS. Naturally, I can't recommend the Halifax/BoS Regular Saver account to Farepak customers, as this would add insult to injury!

Of course, you can use regular-savings accounts to save up for other long-term purchases, such as buying a car, paying for a holiday, or saving for a rainy day. Still, by starting to save in a regular-savings account before this Yuletide, you'll have a lump sum plus a chunk of interest all set to pay for next Christmas. All you need is the patience to save every month, but if you miss a payment or two, you could lose these tasty rates, so check any restrictions on withdrawals and payments before investing!

Finally, if you're prepared to move your current account to take advantage of even higher interest rates on regular-savings accounts, you can earn before-tax rates as high as 12% a year with the Alliance & Leicester Premier Regular Saver. Now that's what I call a high interest rate!

PS: My son and daughter are keen to help the children of Farepak savers; they have several bags of toddler-age toys to give away. If you can help me to get these to a few Farepak customers, please contact me via the TMF Article Feedback discussion board. Thanks a lot!

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