Christmas savings accounts: What are the interest rates and are they worth it?

Christmas regular saver deals are bouncing back – and they pay some of the best interest rates on the market.

These festive accounts are a traditional part of the savings world. They are meant to encourage people to put away a bit of cash every month to help with the cost of next year’s Christmas.

Savers put in a certain amount each month, then get it back in 12 months’ time – with interest.

But the deals almost died out during the worst of the Covid-19 pandemic, going from around 12 deals in a normal year to just one in 2021.

Now there are four Christmas regular saver deals, paying some of the best interest rates available – on paper, at least.

Festive fund: Christmas savings accounts can pay top rates – but the way interest is calculated means savers might not get as much as they think 

The best Christmas saver deal rate is 5.5 per cent, from Monmouthshire Building Society’s Christmas Saver Bond. This deal lets savers put aside up to £200 a month, or £2,400 a year, according to financial data firm Moneyfacts.

That 5.5 per cent rate is the second-best interest available on any regular saver – beaten only by First Direct with a 7 per cent deal. There are around 34 regular saver deals in total.

Other notable Christmas regular 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 need to know before signing up to one. 

>> Check the latest savings rates with our independent best buy tables 

Don’t be caught out by headline interest rates

The way interest rates are worked out on regular saver deals can trip savers up and mean they earn far less than they think.

Moneyfacts finance expert Rachel Springall said: ‘Many of these deals have a nice headline interest rate figure, but that might not be what you end up getting.

‘Many providers don’t make this clear on press releases, but do in the fine print that comes with the deals themselves.’

Let’s take the best Christmas regular saver, from Monmouthshire Building Society, as an example. This deals pays 5.5 per cent and lets you save up to £2,400 a year.

Five-and-a-half per cent of £2,400 is £132 – but savers with this amount of cash would get back just £71.33 from this deal after one year – just over half of £132.

The reason is how regular saver deals work, where you put a bit of cash aside at intervals and the interest is worked out daily or monthly, not yearly.

To illustrate this, if you put £2,400 into a fixed-rate bond paying 5.5 per cent, at the end of the year you would earn £132 in interest. That is because you would be earning that 5.5 per cent rate all year on all of your £2,400.

But most regular savers do not pay interest yearly, by their nature – they pay a fraction of that headline interest rate daily or monthly.

Taking the Monmouthshire example above, you will not earn the full 5.5 per cent on your £2,400 until the very final month.

For every month until then, you earn a fraction of that 5.5 per cent based on how much you have put into the deal each month.

>> Check how much interest you are likely to earn with our savings calculator 

However, experts say there is a value to regular saver deals that goes beyond interest rates.

Springall said: ‘It’s about the importance of putting money aside and getting a bit of help with the costs of Christmas.

‘The whole purpose of these deals is to encourage people to save every month, as many will not let you touch the money until the end of the term – but it does all depend on your individual needs.’

This post first appeared on Dailymail.co.uk