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Christmas savings accounts are back and pay some of the best interest rates on the market… but don’t be fooled by the fine print
- Christmas savings offers allow customers to pay for the holidays
- These savings accounts are making a comeback and paying top interest rates
- But they may trip up some unwary customers, who may be earning less than they think
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The regular Christmas savings deals are bouncing back – and they pay some of the best interest rates on the market.
These party accounts are a traditional part of the savings world. They are meant to encourage people to set aside some money each month to help with the costs of next year’s Christmas.
Savers deposit a certain amount every month and get it back after 12 months – with interest.
But the deals almost died out during the worst of the Covid-19 pandemic, going from about 12 deals in a normal year to just one in 2021.
Now there are four regular Christmas savings deals, paying some of the best interest rates available – at least on paper.
Festive fund: Christmas savings accounts may pay top rates – but the way interest is calculated means savers may not be getting as much as they think
The best discount rate for Christmas is 5.5 per cent, from Monmouthshire Building Society’s Christmas Saver Bond. The deal allows savers to set aside up to £200 a month or £2,400 a year, according to financial data agency Moneyfacts.
That 5.5 percent rate is the second-best interest rate available to any regular saver — beaten only by First Direct with a 7 percent deal. There are about 34 regular savings deals in total.
Other notable regular Christmas savers pay 5 per cent (Principality Building Society’s Christmas 2023 Regular Saver Bond) and 3.5 per cent (Nottingham Building Society’s Seasonal Saver).
Here’s what savers should know before signing up.
>> View the latest savings rates with our independent best buy tables
Don’t be fooled by general interest rates
The way interest rates are calculated on regular savings deals can trip up savers and mean they’re earning a lot less than they think.
Moneyfacts financial expert Rachel Springall said, “Many of these deals have a nice overall interest rate, but that may not be what you end up getting.”
“Many providers don’t make this clear in press releases, but they do in the small print accompanying the deals themselves.”
Let’s take the best regular Christmas saver from Monmouthshire Building Society as an example. This deal pays 5.5 per cent and saves you up to £2,400 a year.
Five-and-a-half percent of £2,400 is £132 – but savers with this amount would only get back £71.33 from this deal after a year – just over half of £132.
The reason is how regular savings deals work, where you put aside a little money at intervals and the interest is calculated daily or monthly, not annually.
To illustrate, if you put £2,400 into a fixed rate bond that pays 5.5 per cent, you’ll earn £132 in interest at the end of the year. That’s because you’d earn that 5.5 per cent rate all year round on all your £2,400.
But most regular savers don’t naturally pay annual interest — they pay a fraction of that nominal interest daily or monthly.
Taking the Monmouthshire example above, you won’t earn the full 5.5 per cent on your £2,400 until the very last month.
For each month until then, you’ll earn a fraction of that 5.5 percent based on how much you put into the deal each month.
>> See how much interest you’re likely to earn with our savings calculator
However, experts say regular savings deals have value beyond interest rates.
Springall said, “It’s about how important it is to put money aside and get a little help with the cost of Christmas.
“The whole point of these deals is to encourage people to save each month, as many don’t let you touch the money until the end of the term — but it all depends on your individual needs.”