If you've got Christmas money burning a hole in your pocket, you're probably thinking about what to do with it. Well, step away from the high street! While it's always tempting to blow it on a few treats, a much more sensible option is to save it. That way, you can treat yourself to something even bigger in the future! So, with this in mind, we've outlined the top six places to squirrel away your Christmas cash to really make the most of it.
An ISA should always be the first port of call. It'll be a great home for your Christmas cash as it's the most tax-efficient form of saving possible, it lets you earn interest without giving anything to the taxman, and even though the Personal Savings Allowance offers the same kind of thing, with an ISA there's no limit to the amount of tax-free interest you can receive. But which type of account should you choose?
Well, a variable rate cash ISA could be a great solution – many are easy access, so you can get your hands on your cash should you need it. Or, if you're willing to lock your money away for the promise of a better rate, a fixed rate ISA could be for you.
Alternatively, if you're happy with an element of risk, a stocks & shares ISA could be worth considering. It offers the same tax-efficiency as a cash ISA but with the potential for better returns, as you're actively investing in the stock market. However, this means there's also a lot more risk involved and the chance that you could end up with less than you put in, so you'd need to be prepared for that.
If you've already utilised your ISA allowance for this year, and want the convenience of being able to dip into your savings whenever you need, an instant access account could be for you. It's the perfect choice for those building up an emergency fund – you wouldn't want to give notice if you had a sudden financial outlay, after all – or if you're not quite sure what you want to spend your Christmas money on just yet, as you can withdraw the cash as necessary.
If you're saving up for something big and want your Christmas cash to help fund it, you may want to lock your money away in a fixed rate bond. These accounts offer higher rates of interest than their easy access counterparts on the provision that you leave your money locked up for the full term, and although many will offer the chance to access your cash early, it'll usually be subject to a hefty penalty. There are plenty of options to choose from depending on the timeframe you've got in mind, usually between one and seven years, so there'll be something for every saver and every goal. In even better news, fixed savings rates have edged up in the last month, which means now could be a great time to get on board!
If you really want to kickstart your savings habit, a regular savings account could be the perfect choice. These accounts normally specify that you have to deposit a minimum amount each month and usually offer higher rates of interest than traditional accounts, on the provision that you don't miss a monthly payment. This provides a great incentive to regularly put money away without needing a long-term commitment, and your Christmas cash could be the perfect lump sum to get you started towards your savings goal.
High interest current accounts have come under the spotlight recently, and with good reason – many can double up as highly beneficial savings vehicles, with some offering far more interest on in-credit balances than you could get from a traditional savings account. In fact, you could earn as much as 5% interest, without needing to lock your money away, and although the headline rate is usually only offered up to a certain balance, it could be a great way to maximise your returns.
This may not technically be a home for your money, but if you've got existing credit card debts or overdrafts, then you'll want to pay those off before putting any disposable cash in a savings account. This is simply because the amount of interest you'd pay on credit commitments would far outweigh anything you'd receive from a savings account – unless you've got a card that charges 0% interest on purchases or balance transfers, of course – so if you're paying interest on your debt, you may want to consider using some of your Christmas cash to pay it off. Boring? Perhaps, but you'll save far more in the long run!
As you can see, there are plenty of places you can stash your Christmas cash to make it work harder, and you could soon watch the interest stack up. So, consider saving rather than splurging in the sales and you can start the New Year with more cash in your pocket – instead of a load of unnecessary bargains!
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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