Christmas '09 – already on our minds

Worried about how you'll save for presents in the midst of a recession? Kate Hughes and Nargis Ahmad look at the options

You have just three days left and debit, credit and store cards, as well as good old cash, will be feeling the effects of our festive buying. We will have spent an average of £480 each on cards, presents, accessories and other festive fare this Christmas, according to research by HSBC. And despite the money worries across the country, some age groups, 44- to 55-year-olds among them, typically fork out £580 each.

Next year is likely to be tougher still as the recession really takes hold, so it isn't premature to start wondering how to put enough money by for Christmas 2009. You may feel your options are limited, given the damage inflicted on our confidence in the banking sector this year, as well as the catastrophic failure two years ago of the Christmas hamper firm Farepak, which cost thousands of British families the money they had been investing each month as a way of spreading out their payments on festive food and gifts.

However, the Christmas saving club sector has worked hard to improve its image after the collapse of Farepak. The newly formed Christmas Prepayment Association is a self-regulatory trade body, with Country Christmas, Family Christmas, Park Christmas, Variety Christmas and Post Office Christmas as its members. Crucially, if one of these clubs were to go bust, you would get the value of your investment back in vouchers or goods. There is also a variety of discounts and deals associated with Christmas savings clubs which, used properly, could help save you more cash.

But there are better ways to manage the cost of Christmas next year, argues Kevin Mountford, head of savings and current accounts at the price- comparison site Moneysupermarket.com, especially when it comes to finding the best interest rate for your money. "Building societies tend to offer Christmas products," he says, "and Skipton's Christmas Saver account pays 5.3 per cent, which is fairly good in today's economic climate.

The account, allows savers to stash away between £10 and £250 every month, although you can't make any withdrawals until 25 November, when the money is transferred to an easy access account, ready for that Christmas shopping spree.

While these accounts are specially designed with the festive season in mind, it is also worth looking at regular savings accounts, as these offer higher interest rates.

Abbey's Fixed Rate Monthly Saver pays 6 per cent if you make no withdrawals and allows you to save from £20 to £250 a month. If you dip into the account, the rate drops to 5.51 per cent. Barclays also has a 6 per cent regular savings deal, with the rate falling during any month in which you make a withdrawal.

You should also consider using up the annual personal allowance of £3,600 for investing in a cash individual savings account (ISA). Given the turbulence in the stock market, cash ISAs have grown in appeal compared to share deals, and although the interest rates they offer have suffered in the wake of the Bank of England's savaging of the base rate from 5.25 to 2 per cent, the returns are tax-free. So you could look at this saving as paying for some presents. And there are still some competitive deals out there, such as First Direct's 7 per cent for a minimum monthly investment of £25. You will need 12 months of contributions to qualify for this rate, though, so start now if you want to cash in by next Christmas.

"It's a good idea as well to have easy access savings accounts and to allocate each one to a different purpose, such as home improvements, the car or Christmas," says Mr Mountford. "By budgeting and dividing the Christmas goods you purchase by 12 months, you can identify what you need to save. This will ease the burden of paying for everything in one go."

If you are prepared to tie up money for a set period then savings bonds or fixed-rate bonds can be good options, suggests Darius McDermott at independent financial adviser Chelsea Financial Services. But the deals are already looking far less attractive than they did a few months ago. The average rate offered on a one-year savings bond has been cut from 6.2 per cent to 3.8 per cent as a result of the Bank of England's recent move.

"It is almost certain that interest rates are going to go down next year," says Mr McDermott, "which means all savings rates will go down too. But what you can do is guarantee a rate for a set period.

"As with all savings accounts, there is an element of risk with fixed-rate or savings bonds. The main concern for a saver is that the bank or building society that has issued the bond will go bust and they will lose their savings," he says. "To avoid this, don't put more than £50,000 in one savings or fixed-rate bond, as the first £50,000 of any cash invested in a UK-regulated bank or building society is covered by the Financial Services Compensation Scheme."