Savings: Christmas clubs make a comeback

When the company folded in October 2006 its 120,000 customers - many in low-income families - faced an average shortfall of 400, with some people losing more than 2,000, and many are still waiting for compensation, which will amount to just 15p for every pound they lost.

There has since been a raft of changes in the Christmas savings market that savers need to think about when they come round to setting up next year's saving plan.

The Christmas Prepayment Association (www.cpa-advice.co.uk) was founded after Farepak folded with the sole purpose of protecting people's money so that, should anything happen to the company running the Christmas club, individual savers will not lose out.

Derek Walpole, independent chairman of the CPA, said: "Our single aim is to keep savers' money separate from anybody else's. It is ring-fenced in a trust account and it can only be taken out with signatures from the trustees. The money in that trust account is completely separate to anything else that the company might do."

So anyone looking to use a Christmas saving club should first check it is a member of the CPA, which means it guarantees adhering to a code of practice offering protection for savers' money because the funds are kept in trust.

The CPA currently has just three members - Park Christmas Savings, Variety Christmas Savings Club and the Post Office Christmas savings Club - although they are among the biggest players in the market.

Gary Woods, managing director at Park Christmas Savings, has more than 400,000 customers to look after. He said: "We give people a discipline and an ability to save over the year without getting into debt."

Christmas clubs do not tend to pay interest on the money saved, although in some schemes there will be a small bonus if savers continue paying into their plan throughout the year.

The money also tends to be locked away, making it difficult for savers to access the funds before the stipulated date.

These drawbacks mean it's worth checking out all of the options available before deciding to put money into a Christmas saving club, according to Sue Russell, a spokeswoman for Consumer Direct, part of the Office of Fair Trading.

"Either they could save with their own bank, which would give them flexibility for their money throughout the year in case they need it in an emergency, or they could use a Christmas account where they put a set amount of money into the account, although they have to bear in mind that they cannot draw that money out so easily," said Russell.

Indeed, Consumer Direct has a comparison table of what the various saving options are for consumers looking to put a little aside for Christmas. This can be found on its website: www.consumerdirect.gov.uk.

Although Christmas clubs do not offer interest, Woods is quick to defend them. He pointed out that in the current climate the interest earned on savings accounts is almost negligible and said that for those saving 5 or 10 a month, the convenience offered by a Christmas club makes it better value for money, with agents coming round to savers' houses to collect the funds.

He added that putting the money out of sight and reach helps to keep it out of mind and give people the discipline not to raid their savings during the course of the year.

Where savers decide to go with a Christmas club, Russell advised looking closely at the detail of what is offered and to understand just how the scheme is run.

She said: "We would urge people to check what the terms and conditions are. If the shop or company offering the scheme goes out of business then it can be really hard to get your money back."

Those using a savings card or buying stamps each week need to know what would happen if they lost the card or stamps. Is the company keeping a record of the transactions so that there is no confusion about exactly what has been saved?

For those saving with a voucher or stamp scheme Russell added: "You have to check where you can use the vouchers or stamps you have saved and that it actually suits what you will need."

There is no doubt that the collapse of Farepak was a hammer blow to the industry and one from which it is only just recovering. Walpole said: "The impact was devastating for the first year. It happened in Christmas 2006 and the year after it took a real side swipe at the industry, but it has just about recovered and made a little bit of progress since then."

As the creditors of Farepak continue to wait for payments, savers in the future can help protect themselves by looking out for members of the CPA, understanding the scheme they are signing up to and taking time to consider the other options available.

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