Christmas accounts – The Scrooge of savings accounts?

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How do Christmas savings accounts measure up to the best deals on the market? Chris Walker checks them out.

November 18, 2009

It’s that time of year when many of us wish we’d tucked some cash away for festive spending. A range of specially designed Christmas savings accounts are available but they can be more like Scrooge than Santa Clause.

Research by ING Direct showed the average Aussie household spends around $1,300 on Christmas purchases. With that sort of money involved, many families are left scratching for cash or racking up purchases on high interest credit cards.

A number of institutions, typically credit unions, offer Christmas savings accounts designed to help us save for the festive season. These accounts usually accept deposits throughout the year but the accumulated balance can only be withdrawn between November and December, just in time for the silly season.

The fact you have to keep your money in these Christmas accounts until close to the end of the year is a key feature – it prevents you raiding the honey pot in the meantime. However, the interest your money will earn often looks like something dished out by Ebenezer Scrooge. The top paying Christmas savers listed on RateCity are offered by Australian Defence Credit Union, ECU Australia and Circle Credit Co-op, with each of these accounts paying interest of just 2.5 percent p.a.

If you can resist the urge to dip into your savings before Christmas, it’s possible to earn a much higher rate of more than 5 percent p.a., with the likes of UBank’s Usaver (5.46 percent), ING’s Savings Maximiser (5.25 percent) and Westpac’s Reward Saver (5.2 percent). These accounts may include bonus rates that only apply for an introductory period but in most cases the ongoing rate is still higher than the 2.5 percent you’ll earn on a Christmas saver.

To see the difference a more generous rate can make, let’s assume you open a Christmas savings account in January with an initial deposit of $100. Add an extra $20 each week, and with a rate of 2.5 percent by the time Christmas comes around, the accumulated balance would be around $1,420, slightly more than the average we each spend on holiday season purchases.

If the same savings pattern is followed with an account paying 5 percent interest, at the end of 12 months, the balance would be about $1,440, providing an extra $20 to spend on turkey and trimmings. Okay, $20 is not much, but every dollar counts. Choosing between a special Christmas account and a higher paying savings account probably will come down to deciding how much willpower you have – to dip into your money before the tinsel goes up.

While the rates offered by Christmas savings accounts aren’t high, they are a far better alternative than overloading your credit card. Putting an extra $1,400 worth of purchases on a card charging 18 percent could mean paying an additional $250 in card interest over the following year. Looked at this way, Christmas savings accounts don’t seem so Scrooge-like after all.



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