How do those Christmas saving schemes work?

MilesMorales1

I keep seeing those adverts on the tv for Park Christmas Savings, so I went on the website to see how much they'd charge for that service, and it seems like they don't take any money from this themselves, the amount you pay in is the exact amount you'd get back in vouchers by November or whatever.

How do they make the profit? Do they get the vouchers cheap?

Birneybau

The interest?

seamus

They make interest on the money that you save with them - you don't.

And yes, they get the vouchers cheap. Also, those "use in loads of shops" gift cards usually have a form of commission on them. So you cash out in Park's own vouchers, use those vouchers in a shop, the shop goes back to Park to ask for their money and Park take their cut before sending the cash on.

clintondaly

Its like any business-They have credit terms with suppliers,usually 30 to 60 days,they sell you an item and bank the money for the 30 to 60- days until it is due to be paid out,interest earned for this period of time is theirs.

In this case if you started saving in January and they dont have to pay out till November/December ,they have earned interest on that money in the meantime.

valoren

Sort of like how Warren Buffet got to be so rich. He realized that insurance was the perfect vehicle for getting money to invest. When people bought insurance, he saw that the float which was what was the monetary difference between the premiums coming in and the claims going out could in the meantime be invested in businesses that paid dividends.


Those investments which accumulated in capital gain and the dividends reinvested coupled with annual right-as-rain premiums coming in to repeat the process allowed him to compound relentlessly. There's a reason he (or rather Berkshire) owns Geico insurance outright.

It's the same principle with Park but on a smaller scale. Money coming in that you know must be paid back at a future point but in the meantime you could use the float to make more money.

Say a conservative estimate would be 50,000 people signing up in January to put away a tenner a week. That's an immediate half a million straight off. Invest that now to be guaranteed a 3% return (with a dividend payment) and week 1 will generate 15k by the time that half a million had to be paid out in time for Christmas.

They might have a set investment methodology to invest for 11 months in stocks that meet certain criteria. Think something along the lines of the Dogs of the FTSE (the top ten shares per dividend yield in the FTSE 100) for example, some methodology like that i.e. put 50k in Shell, 50k in Llloyds etc etc and hold for a year. Some years the return could be big, some years the return might be a loss, that's the business is my guess.

Beasty

Pretty sure this is the old Park Christmas Hampers. Don't know if they traded as that in Ireland but in the UK you saved up during the year and bought from their own catalogue at Christmas. In those days they made money out of the products sold as well as the cash flow benefit

The new model is similar in principle, and is attractive to both Park and Voucher issuers as it essentially encourages you to go with them when you come to take your savings out. Hence park gets their cut from the voucher company plus the cashflow benefit

If you save in a bank you won't get much interest at this time, but you will get a lot more choice when you start splashing out in those pre-XMas sales

seamus

Beasty wrote: »

If you save in a bank you won't get much interest at this time, but you will get a lot more choice when you start splashing out in those pre-XMas sales

Their model relies on locking-in the saver. You place an order for vouchers now and that becomes a debt on your account.

In effect, you are in debt until Xmas. You don't get any vouchers until you've paid off your whole order.

Which presumably lights a fire under you to make sure it's covered, otherwise you get to Xmas and not only do you not have any vouchers, but Park also have most of your Xmas money.

Whereas a bank savings account can be dipped into and you can cancel the standing order without any impact.

It's not a service I'd use, but I do understand how some people need more of a "pull" stimulus to make them save.

seamus

seamus wrote: »

Their model relies on locking-in the saver. You place an order for vouchers now and that becomes a debt on your account.

In effect, you are in debt until Xmas. You don't get any vouchers until you've paid off your whole order.

Which presumably lights a fire under you to make sure it's covered, otherwise you get to Xmas and not only do you not have any vouchers, but Park also have most of your Xmas money.

Whereas a bank savings account can be dipped into and you can cancel the standing order without any impact.

It's not a service I'd use, but I do understand how some people need more of a "pull" stimulus to make them save.

Is that really it? I assumed the amount was totally at your discretion and you got vouchers for whatever you had managed to give them

seamus

bluewolf wrote: »

Is that really it? I assumed the amount was totally at your discretion and you got vouchers for whatever you had managed to give them

No, you place your order early on and then spend 9-12 months paying it off. If you've paid it off, you get your vouchers.

If you haven't paid it off, you can cancel the order but they'll take a certain % as a termination fee.

If you look at the T's & C's, you can cancel before 1st September that year to get all of your money back. After the 1st September, you'll be penalised.

I'm sure they've chosen that date largely because people don't even start thinking about it properly until that date has passed and they're then locked-in.

iguana

I really worry for the people who save with them as I doubt their money is at all protected if Park collapsed. Their customers are people who are aiming to be responsible even though they don't fully trust themselves to save without being compelled and having their money made untouchable. It's not how I handle my finances but I respect people who recognise their weaknesses and find ways to help themselves achieve their goals. But I hate how vulnerable it leaves them.

OneOfThem Stumbled

I hate that advert so much.

Can it be too early?

Look at that pig waddling backwards before exploding because it's so engorged with coupons. Could have just saved that money normally without recourse to a third party, but the pig just really sold me.

Also, Christmas adverts in January ffs

And that dance...

MilesMorales1

iguana wrote: »

I really worry for the people who save with them as I doubt their money is at all protected if Park collapsed. Their customers are people who are aiming to be responsible even though they don't fully trust themselves to save without being compelled and having their money made untouchable. It's not how I handle my finances but I respect people who recognise their weaknesses and find ways to help themselves achieve their goals. But I hate how vulnerable it leaves them.

I also thought that, since I remember in the UK not long ago there was another similar service which collapsed and people lost an awful lot of money on it.

Thanks for the answers BTW.

iguana

MilesMorales1 wrote: »

I also thought that, since I remember in the UK not long ago there was another similar service which collapsed and people lost an awful lot of money on it.

It happened in Dublin during the recession. Thousands of people lost several millions in savings when a savings company went into liquidation.
https://m.independent.ie/irish-news/home-budgeting-firm-owes-10m-to-customers-and-aib-court-hears-26764684.html

Capt'n Midnight

seamus wrote: »

They make interest on the money that you save with them - you don't.

And yes, they get the vouchers cheap. Also, those "use in loads of shops" gift cards usually have a form of commission on them. So you cash out in Park's own vouchers, use those vouchers in a shop, the shop goes back to Park to ask for their money and Park take their cut before sending the cash on.

Like all vouchers they also get free money when people loose or forget them.

They also make money because of inflation. €100 today has more spending power than €100 in the future. Many big retailers buy a year or two in advance to get the best price too.

Vouchers also mean less risk because you are locked in. At the worst it's guaranteed income. So makes borrowing cheaper.


I've heard that Dunnes stores used to make their money on short term high interest loans and barely broke even on what they sold.

Capt'n Midnight

Wasn't there a scam with Christmas shows where the tickets weren't refundable for a year ?

MilesMorales1

Capt'n Midnight wrote: »

Wasn't there a scam with Christmas shows where the tickets weren't refundable for a year ?

I think that was in the UK. Unless its a different thing I'm thinking of.