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With Black Friday just gone and Cyber Monday offers streaming into our inboxes today, it is likely most of us have started our Christmas shopping by now. However, the question remains: how are you paying for it all?
A report from the Financial Conduct Authority (FCA) suggests 13% of Brits have no savings whatsoever, which means the cost of Christmas would likely have to fall on credit cards or their bank account overdraft. Even those with some savings might not have enough to cover the £1,206 that American Express has estimated people will be spending on average this Christmas.
"Relying on short-term finance to cover the cost of the festive spend is not a terrible idea, but it's important for shoppers to pay off any accumulated balances to avoid interest charges and so that any debts do not remain hanging overhead in the New Year," said Rachel Springall, finance expert at Moneyfacts.co.uk.
If you don't pay off the debt as soon as you can, you could be at risk of having it hang over you for as long as until Christmas next year. Instead, now might be the time to assess your household expenditure and see if you can cut back on some spending. You might then be able to start saving up a pot of money for next year's festivities.
|Savings product||Provider||Account||Gross rate at £1k||Min. deposit||Opening notes|
|Fixed-term regular saver||Saffron Building Society||12 Month Fixed Rate Regular Saver (Issue 3)||3.50%||£10 per month||New customers must apply in branch|
|180-day notice account||Secure Trust Bank||180 Day Notice Account||1.85%||£1,000||Must be opened online|
|Easy access with bonus||Marcus by Goldman Sachs||Online Savings Account||1.49%||£1||Must have a UK mobile phone number to apply|
"One way to get into the habit of saving monthly [for next Christmas] would be to commit to a regular savings account, as these are designed for consumers to make frequent deposits," said Rachel. "They are more rigid than easy access accounts and harsh penalties can be applied if payments are missed or withdrawals are made, so they are most suitable for savers who need a strict savings plan and who wish to avoid dipping into their cash early."
However, in exchange for this rigorous savings schedule, savers can gain some of the highest interest rates on the market, with Rachel finding that "new customers can earn up to 3.50% on a fixed term regular saver with Saffron Building Society, [but] savers could earn up to 5% on a fixed regular saver if they are prepared to switch their current account to first direct, HSBC, M&S Bank or Nationwide Building Society." Additionally, there are some regular savers that don't require a payment every single month, giving new savers some breathing space – although they would then miss out on a higher amount of interest overall.
Alternatively, Rachel mentioned notice accounts, "for those who have a lump sum to invest," but don't want to commit to a one-year fixed rate bond, as these "offer more flexibility but also allow savers to feel safe in the knowledge that they can withdraw their funds by giving some notice. These accounts may be especially desirable for savers expecting higher interest rates next year and who want an opportunity to reinvest their cash, such as in 180 days' time."
For savers who are not prepared to lose any access, in case they might need it for an emergency, there's always easy access accounts to consider. However, Rachel warned savers to "bear in mind that the golden rule of saving towards a goal is to not dip into any pot unless it's unavoidable."
So, if you are feeling overwhelmed by the festive season ahead and unsure how you're going to get through it without debt, now might be the time to make a plan for next year. Hopefully, you would then be able to avoid at least some of the stress that you're likely feeling this year.
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