Money Insider: After a festive high time you may need a safety net

Don't let an early Christmas payday turn into a New Year charges nightmare.

The run-up to Christmas is the most expensive time of the year for most people so it's probably a great help if your employer enters into the festive spirit and pays your December salary a week or two early.

However while this might initially prove to be a boost with all those presents to pay for plus additional parties and nights out celebrating with family and friends, getting paid earlier than usual means it's even easier to lose track of your finances, particularly when your next payday could be six weeks away.

If you fail to keep a close watch on your current account balance and adopt a "worry about it later" attitude, you could run out of cash and be faced with a big bank charges bill come the first few weeks of 2011.

If you don't have an agreed overdraft, or think you need a little more financial breathing space, contact your bank or building society and arrange an authorised overdraft to see you through to January payday. It's usually a pretty pain-free process and can be arranged very quickly either online, by telephone or popping into your local branch.

Once you've got your safety net arranged, make sure you check your account on a regular basis – there's no excuse not to these days with the information available 24x7 online, on your Smartphone or via a cashpoint machine.

To emphasise the importance of staying within your agreed limit, I looked at how much it will cost if your bank agrees to pay two £75 cheques that take you £150 over your limit and then your account remains overdrawn by this amount for seven days until your January salary is received. The numbers are quite scary, with customers of Santander facing a bill of £95.83, Lloyds TSB £75.54, Nationwide Building Society £50.54 and Barclays £22.00 – so be warned.

One of the biggest problems with unauthorised overdraft charges is that there's no common policy among providers, some charge daily, some charge monthly, some do both and the level of charges varies widely, but whichever tariff you're signed up to, it can end up hitting your pocket hard.

Stay within your agreed limit and the charges you incur will be minimal, and by keeping tabs on your money at least you won't give the banks the charge to play Ebenezer Scrooge this Christmas.

Savings double from Yorkshire Building Society

There's been a flurry of activity in the fixed-rate savings market over the past three weeks, with most action in the one-to-three year products.

This week Yorkshire Building Society joined Northern Rock and the Post Office at joint No1 spot with a three-year bond paying 4 per cent. The account can be opened with a minimum balance of £1,000 and is available in branch, by telephone and online.

This launch follows hot on the heels of the Christmas Saver account paying 3.5 per cent gross launched by Yorkshire the week before.

I appreciate it is probably difficult to get your head round saving for next Christmas when you haven't even finished your shopping for this year yet, but it's certainly worth considering.

You can put away any amount up to £100 every month between now and 30 November 2011 when the account matures.

The account can be opened with as little as £10 and there is no minimum monthly investment required, you can accumulate up to a maximum of £1,200 over the account period and deposits can be made by standing order, cash or cheque.

The Christmas Saver account is also available at all Chelsea and Barnsley building society branches, featuring the same product details and also paying 3.5 per cent gross.

With savings rates at such low levels it's not going to make you rich overnight, but this time next year it could save you having to rely on your overdraft or your trusty plastic.

Savings compensation limit to increase

Currently savers are protected by the Financial Services Compensation Scheme to the tune of £50,000 (£100,000 for joint accounts), should their bank collapse.

From 1 January the limit will be raised in line with compensation levels in Europe. A €100,000 limit will be introduced in the UK but, rather than the sterling equivalent fluctuating on a daily basis and causing widespread confusion, it has been agreed to fix the ceiling at £85,000 per individual for the next five years.

This is good news for savers, many of whom are still mindful of the impact of the Icelandic banking crisis and the issues it caused to people over here.

Andrew Hagger is a money analyst at Moneynet.co.uk

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