Start Saving NOW For Your Christmas Costs!

Christmas is coming. But is your savings habit slack?

This article was originally sent to Fool readers as part of our Summer Lolly email campaign.

Yes, I know: those winter celebrations are still five months away. But if you start planning for them now, you could save yourself a lot of stress -- and money.

When days are long, the weather's fine and you don't need to wrap up warm, it's easy to forget the money madness that comes with the season of goodwill -- and the vast amount that partying and presents can cost.

According to debt charity Credit Action, we Brits spent an average of £907 each at Christmas time last year -- a pretty staggering amount, and one few of us are likely to have handy.

So perhaps it's not surprising that, when they surveyed shoppers in the run up to Christmas 2007, Credit Action found 41% of respondents admitted they'd paid for the previous year's festive fun using credit cards.

Worryingly, almost one in five were still struggling to clear those debts.

Why Saving Now Is Smarter

As any Fool knows, it's far better to be earning interest than paying it. By putting money aside early, you can increase the value of the dosh you deposit -- and avoid having to pay for borrowing later.

According to APACS, the UK payments association, British credit card holders spent a staggering £32.3bn on their plastic in the three months before last Christmas.

Assuming that their debt was at a typical interest rate of 16.5%, this could collectively have cost them a whopping £5.33bn by Christmas 2008!

But it's only July

Yes, it is, but the festive season is never as far away as it seems. In fact, it will be Christmas in just 169 days. Eek!

And thanks to the credit crunch, interest rates have increased - which means it costs more to borrow money than it did a few years ago.

So it's now more important than ever to avoid covering Christmas costs with credit cards.

What's more, credit is not as freely available as it once was -- so anyone assuming they'll be able to spend substantial amounts on their credit cards this winter (or transfer debts to a 0% deal in the New Year) could end up disappointed.

Where To Stash Your Cash

If that's convinced you to start saving, hurrah!

However much you can afford to put by each month between now and December, it's a step towards starting 2009 positively -- and with less of the demon debt.

Clever Accounts For Seasonal Savers

Wondering where you should stash your cash in order to maximise your savings? Look for an account that:

         Pays interest monthly (not yearly).

         Gives you instant access to your money or.

         .allows at least one penalty-free withdrawal.

Here are my top three accounts for festive saving:

As you can see, there doesn't seem to be much between these accounts in terms of the interest they offer. However, there are a couple of additional things savers should consider.

Although the Birmingham Midshires eSaver promises the best AER, a closer look at its terms and conditions reveals that any interest earned in this account must be `paid away'.

This means the interest you earn on your savings can't be compounded, and it cuts down the potential for your savings to grow. That's hardly ideal when you have just five months to build them up!

Because both Bradford & Bingley and Kaupthing allow compounding, I think they're probably the better bets for savers -- despite offering slightly lower rates.

It's also worth remembering that, although the AERs on all the accounts listed here are variable, Kaupthing has guaranteed the interest rate on its savings account will remain 0.30% (gross) higher than the Bank of England base rate until 2012.

That's good to know, as it means the rate of interest you're earning on your Christmas cash can't be cut within days of you opening your account. It's also great news for smart Fools who'd like to keep using the account beyond the festive period.

However, to open the Kaupthing account you'll need to deposit at least £100 straightaway. If that's a tall order, perhaps the Bradford & Bingley account is the one for you.

Foolish Festive Fun

Whichever savings account you choose, using it wisely is one way to make sure that this year's Christmas cheer doesn't give way to debt depression come the New Year.

Have a fun -- and Foolish -- festive season in 2008!