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You and your money
When the news broke recently that the Farepak Christmas hamper club had gone bust, many families were devastated to discover that the money they'd saved up for their Christmas treats had probably been lost.
Over 140,000 people were making regular payments to Farepak's 25,000 agents, with the hope of exchanging their savings in November for hampers, vouchers or gifts for the festive season. Some stand to lose £1,000 or more.
Schemes like Farepak seemed a great idea. They encouraged the self-discipline of saving throughout the year by regularly putting money aside that couldn't be touched.
But in reality they offer a very poor deal. Not only do savers earn no returns on their money, but they stand to lose everything if the firm collapses. This is because hamper clubs are retailers, and so not regulated by the Financial Services Authority (FSA).
What lessons can we learn? Firstly, saving regularly for future spends is an excellent way to manage your money and keep free of debt. But when choosing a home for your savings, always look for FSA protection.
Credit unions, just like banks and building societies, are members of the Financial Services Compensation Scheme. In the event of business failure, savers would get back 100% of the first £2,000 saved, plus 90% of the next £33,000 (maximum compensation £31,700). Many credit unions also reward their savers with a yearly profit-sharing dividend, offer gift vouchers at a discount and provide free life insurance.
Now is the time to plan your savings habit for Christmas 2007. But do be wary of unregulated clubs, and save with an organisation you can really trust.
Wishing all readers the best possible Christmas and a prosperous 2007.
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