It’s not too early to be planning for next Christmas

Rachel Thrussell, Head of Savings at Moneyfacts.co.uk, explains the advantages and catches of regular savings accounts. “With only two weeks before Christmas, still frantically shopping for presents and preparing for the festivities most of us have probably realised that we should have prepared earlier for Christmas this year. With a significant strain put on our wallets, it may not be a festive time for our finances. So why not think ahead and get prepared for Christmas 2008, so at least next year your finances will be prepared even if you are not.

“Over the last few weeks, Moneyfacts.co.uk has seen the launch of several festively titled regular savings accounts which, started now, could provide the perfect savings plan for Christmas 2009.

“For fairly undisciplined wannabe savers, a regular saver accounts could be an ideal solution. Committing even the smallest amount you can afford will soon see your savings grow. Budget this extra commitment into your expenses and soon you will hardly notice it’s going out, but at the same time you’ll be earning one of the highest savings rates available.

“However, do not over commit. Not only could you be forced to borrow to support your day to day living, if you need to close your savings account, you may lose this interest too. It’s better to err on the side of caution and commit to a realistic amount you can afford, rather than to your ideal plan.

“A word of warning; don’t be lulled in by headline grabbing rates without first knowing the full terms of the account. These high rates don’t come easily. To get the top rates, you will have to be prepared to jump through hoops, perhaps being required to open other accounts with the provider, take out an investment plan or buy a protection product.

“In addition to these specific rules, regular savings accounts have more general restrictions. Your monthly payments need to fall within a minimum and maximum monthly limit, typically between £20 and £250. Withdrawals in some cases are not permitted at all or restricted to one or two per year.

“Also, you will only gain interest on the savings that are in the account on a monthly basis, so you are not going to get the good interest rate on the total amount invested”

“So for these reasons, savers with a lump sum to invest would gain a better return from choosing a fixed rate bond. Moneyfacts.co.uk top one year bond currently pays 6.75%. If you’re extra savvy, you could keep your lump sum in a more flexible high paying account, for example an internet account, which can pay as much as 6.43% and drip feed the maximum monthly contribution to your regular saver.

“A regular savings account can be ideal for an undisciplined saver with a specific purchase in mind, but all savers should bear in mind the restrictions and conditions that come with the great rate. There are some great rates available in other savings markets too.”