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Start saving now for Christmas 2011

Christmas savings accounts offer competitive rates

green investments

Ethical funds vary in their investment approaches

Ok, Christmas is scarcely over and already banks, building societies and the Office of Fair Trading are urging us to start saving now for Christmas 2011. They’re right.

As the post-Christmas credit card bills start to land, Which? principal researcher Martyn Saville makes an early new year’s resolution – to pay for next Christmas in cash. So what is the best way to save over the coming year?

Regular savings accounts and Christmas savings accounts

If you have dependent children, Norwich & Peterborough Building Society currently pays 5% on its Family Regular Saver account. You are allowed one penalty-free withdrawal a year, making this an excellent choice for regular savings for Christmas, so long as you are sure you’ll be able to make the planned deposit every month for 12 months. If you miss a payment or make more than one withdrawal a year, the interest rate drops to 2%.

I don’t have kids, so next best is the 4% (before tax) available from the regular savings accounts from Teachers BS and Norwich & Peterborough BS.

An alternative is a Christmas savings account. Not to be confused with an unregulated Christmas savings scheme (see below), Christmas savings accounts from banks and building societies are fully covered by the Financial Services Compensation Scheme (FSCS). Yorkshire BS, for example, pays a fixed rate of 3.5% on your regular savings for Christmas. The account matures on 30 November 2011, giving you plenty of time to get your shopping done in time for 25 December.

Instant-access savings accounts and cash Isas

If I might want instant access to my savings before Christmas, I could earn 2.9% (before tax) on all balances over £1 with the Post Office Online Saver.

A tax-free instant-access cash Isa like Principality BS’s E-Isa Issue 2 currently pays 2.8%.

Hamper clubs and Christmas savings clubs

I’d avoid these. As my colleague Oliver Smith argued last month on our Which? Conversation site, they offer little protection if the club goes bust (like Farepak not so long ago) or the person running the scheme does an Arthur Fowler-style runner with your Christmas savings. You’d do much better to put your money in your local credit union, which is fully covered by the Financial Services Compensation Scheme (FSCS).

Use the Which? Savings Rate Booster to get the best interest rate

Having weighed up the options, I think I’m going to go for the top-paying instant access savings account, just in case I need the money before Christmas. And to make my cash go even further, I’m going to put all my Christmas spending next year onto my reward credit card and then use the savings I’ve built up through the year to clear the balance as soon as my credit card bill arrives. That way I’ll earn interest through the year at the same time as getting rewards through my credit card and enjoying valuable Section 75 and chargeback cover on my purchases.

However you decide to save, you could get a much better rate than you’re on at the moment by switching to a Which? Best Rate savings account. Use our Saving Rates Booster to see how much you’re currently earning on your savings account and how much extra interest you could be earning by switching to the best account on the market.

Find out more about savings protection under the FSCS

For full details of how your savings are protected, including a guide to which banks and building societies have separate banking licenses and which only offer one lot of £85,000 cover across all their brands, read the Which? guide to .

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