Getting your finances ready for Christmas 2021

Following a muted 2020 festive period, here’s how to get a jump on saving for next Christmas.

2021 loading image on blocks

You might have already had enough of all the COVID Christmas talk this year, but as the vaccines start to roll out, there are hopes that we’ll be able to celebrate next year’s festivities properly.

As always with Christmas, it’s good to get ahead of the game. December is usually a pricey month filled with entertaining family and friends, so saving money ahead of time is a good idea.

Here are some steps you can take to prepare your finances for next Christmas.

Budgeting for next Christmas

While this year has been extremely tough on many people’s finances, others may have found new ways to cut costs. 

If you’ve been spending less money on commuting and eating out, you may already have some cash to put away.

But if not, planning and budgeting can be a great way of setting money aside, as well as giving you greater control over your finances.

We have a free budget planner tool to help put you in control of your spending. You can keep track of your pay, benefits and regular outgoings all in one place. You can save your budget plan and return to it at any time. 

Once you’ve compared the money coming in to what you want to spend, there are several ways that you can put together a budget. One of the most simple and effective is an ‘envelope’ budget. This simply means separating your money out into pots, or envelopes, for spending on different things. For example, you can create a pot each for household bills, food shopping and rent or mortgage payments.

If you have money left over that you can afford to save, you could also create an extra pot for next year’s Christmas celebrations.  

For more budgeting tips and tricks, read our latest budgeting guide.

Find the best place for your money

Savings accounts

Once you’ve worked out how much you can afford to put aside each month, you may want to think about opening a new savings account specifically for your Christmas cash.

If you’re confident that you will not need to withdraw the money until next December, you may want to think about opening a one-year fixed rate savings account, otherwise known as a fixed-rate bond.

These are worth considering as they can offer a slightly better interest rate than a regular easy-access savings account.

An easy access savings account may be for you if you want to be able to keep your options open, or want to make sure you can access your savings in an emergency. 

When shopping around for different savings accounts, make sure the account you choose offers you legal protection in the event that your bank stops trading.

Before you open an account, ensure that the bank you’re thinking of using is covered by the Financial Services Compensation Scheme (FSCS). The FSCS protects your savings and provides you with compensation if your savings provider is unable to pay out.

It covers up to £85,000 of any savings you hold in each official UK financial institution. There are a number of banking groups in the UK, but If you have less than £85,000 with any of them, all of your savings will be returned to you in the event of a bank or building society collapse.

Full details on how the FSCS works.

Compare the best savings account 

Christmas savings schemes

There are a handful of savings ‘clubs’ in the UK designed to help households save for Christmas. 

But before we go into how they work, a quick warning. 

Unlike savings accounts held with regulated financial institutions like banks and building societies, these savings clubs do not offer you financial protection in the event that the company you’re saving with goes bust. 

Well-known Christmas savings clubs like Park Christmas Savings and Variety Christmas Savings Club have said that they take measures to ensure your money is safe. But the truth is that if they go out of business, there is no guarantee that you’ll get your money back.

Sadly, this has happened before. Thousands of savers in a previous firm called Farepak lost money when the company went bust in 2006

The other thing to bear in mind is that unlike a savings account, any money you deposit with a Christmas savings club does not typically earn any interest throughout the year.

So how do they work?

In return for regular monthly payments from the start of the year, these firms offer savers vouchers to spend on food, drink and gift items to be spent in time for Christmas that same year.

The value of the vouchers will be broadly linked to the amount that the customer has paid in throughout the year. 

These firms say that they help families save for Christmas by helping them put aside money that can then be specifically used over the winter holiday period. 

It’s worth noting though, that if you decide to change your mind or simply need to withdraw your money to pay for more immediate costs earlier in the year, there can be hefty penalties.

So if you’re thinking about using one of these clubs to save towards next Christmas, make sure you read all the terms and conditions.

Credit union Christmas savings accounts

Credit unions are community savings and loans providers which operate on a not-for-profit basis and serve a group of members.

To join a credit union and get access to its services you need to share a characteristic with other members that makes you eligible. This could be living in a particular area, or a particular job.

For example, NHS workers can join the NHS Credit Union.

Some also offer savings schemes designed to help members save for Christmas. Unlike money paid to the Christmas savings clubs described above, money saved with a credit union is FSCS-protected.

How do they work?

Credit Union Christmas savings accounts typically behave like fixed rate savings accounts. This means that you may pay a small penalty for withdrawing your money before the months leading up to Christmas.

While any interest you earn from one of these accounts might not necessarily be market-leading, these accounts can provide a great alternative to traditional high street banks or building societies for those looking to put money away.

For more information and to check if you’re eligible to join a credit union, search the Association of British Credit Unions’ Find Your Credit Union site.