LONDON (CU)_As many households in the United Kingdom struggle with what has been described as a “cost of living catastrophe”, you may now consider turning to savings clubs for those big-ticket items like home improvements, now that the government is looking to protect hundreds of thousands of Britons who use them. Savings clubs are a type of bank account which allow customers to for a specific future expense in instalments throughout the year instead of in one go. This is often used by shoppers to save up for Christmas, although they are also ideal to save up for big-ticket items like weddings, or even home improvements.
However, unlike the common savings and current accounts, cash set aside in commercial savings clubs are not protected by the UK’s Financial Services Compensation Scheme, which is the official rescue scheme for customers who have set money aside in financial firms that go bust. This has meant that if a savings club goes out of business, customers would lose their money and not be able to get it back.
Accordingly, Department for Business, Energy and Industrial Strategy has announced plans to propose new laws that safeguard people’s cash set aside in savings clubs by using insurance or a trust, thereby protecting the money even if the company goes bust. With households facing rising costs, “now more than ever, families’ hard-earned savings need to be protected,” the government said.
According to the Department, the laws are also aimed at prevent scandals like Farepak, a Christmas savings club which about £37 million to about 100,000 customers when it collapsed in 2006. The customers had an average of £400, while some of them had reportedly put away four-figure sums. They had to wait for six years to be repaid but only got back about 50p in the pound, which mostly came from compensation funds that were set up to help those facing hardship.
In the UK, there are a number of companies run Christmas savings clubs, with the largest being Park Christmas Savings. The club has about 350,000 customers signing up annually, with their funds being held in an independent trust.