A WARNING has been issued over a popular saving method that could actually cost you money.

As many plan their Christmas finances, insurer Admiral has warned of the security risks in regards to “cash stuffing”.

A warning has been issued over a popular saving method that could actually cost you money

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A warning has been issued over a popular saving method that could actually cost you moneyCredit: Getty

Cash stuffing is a way of budgeting that involves withdrawing money from your bank and dividing it up into labelled envelopes for different spending categories.

These might be groceries, petrol or clothing – or outstanding debts if you have them.

Cash stashers then spend the money in the relevant envelope for that category, restricting their spending to the cash they have budgeted in each envelope.

In recent months, the budgeting hack has grown in popularity on TikTok, where related hashtags have received millions of views.

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Some have managed to clear thousands of pounds in debt by using the method.

But there are some real risks to the savings trick.

Admiral is reminding anyone considering the trick how important it is that you check how much cash your insurance policy covers.

That’s because if your envelopes are lost or stolen, there’s not much you can do about it without insurance.

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Noel Summerfield, head of household insurance at Admiral warned: “Allocating different spending pots can be an effective way of budgeting and staying on top of spending, especially ahead of the Christmas period which can be an expensive time.

“However, having large amounts of cash in the house has its risks. We’ve seen multiple claims where large amounts of cash kept in envelopes have been stolen during a break-in.”

The experts have told how one of their customers was forced to make an insurance claim after two envelopes containing £1,700 in cash were stolen.

Noel continued: “Most home insurance policies should cover money in the home, up to the amount listed on your policy so it’s important to check how much cash you’re covered for.

“Money kept in the home may also cover gift cards and travel tickets so make sure you know exactly what you’re covered for, especially ahead of the festive period where these may be set aside as gifts.”

He also explained that your insurer might require proof of withdrawal or receipts should you need to make a claim, so check this in your policy documents too.

Many insurance policies don’t cover theft of cash from your home unless force or violence was used, he added.

Your cash is covered in the event of fire or flood, but theft from gardens or outbuildings may not be covered.

It’s also important to bear in mind that most insurance companies have a limit to the amount of cash that is covered.

This often varies depending on the different policies they offer, so always make sure to check your specific policy.

“If you must keep cash in the home, make sure it is stored safely in your home, not in a garage or outbuilding and check the limit you are covered for shown in your policy documents,” Noel said.

What are the other drawbacks of cash-stuffing?

There are other things to consider if you’re thinking about withdrawing your money for these cash envelopes.

The first is that you can’t always use cash every where you go – many companies and services don’t accept cash anymore, which could restrict your spending.

It might be a good idea to leave a certain amount in your bank account so you don’t get left short.

Shopping with cash also means less credit or debit card protections.

You could lose out on the consumer rights you’re entitled to from credit or debit card providers if you use cash.

This includes refund rights under Section 75 of the Consumer Rights Act whereby if you buy something costing more than £100 and less than £30,000 on your credit card, your card company has a legal responsibility to come to the rescue if there’s a problem. 

It’s also important to bear in mind you won’t earn any interest on your money if you don’t keep it in a bank account.

Other ways to save

There are some safer ways to manage your savings and still keep yourself on track.

Noel explained: “As an alternative to cash stuffing or keeping large amounts of cash in the house, some bank accounts offer ‘saving pot’ features in their apps or online banking which can help with budgeting in a similar way.”

Online banking platform Monzo is one of those apps.

Monzo money pots allow customers to round up transactions to add spare change to pots automatically and schedule monthly savings deposits to stay on track.

The banking app divides your spending into categories – so you can see exactly where you’re spending (or wasting) your money.

Helpfully, you can even set targets for each category so you can stay within your budget – and it will alert you if you’re spending too much.

Opening a Monzo current account is free but there are some charges, such as for some cash withdrawals.

You can also open a bank account with challenger digital bank Starling in just three minutes using a selfie.

Like Monzo, the app divides your spending into categories and gives you insights into your habits which can help you to budget.

Opening an account is free and you can also set saving goals.

Alternatively, Oval Money has a feature that allows you to save cash in its digital wallet based on your habits.

If you’re a serial social media user, for example, you can set up an alert to transfer money to your savings every time you post on Facebook.

The money goes into a digital savings account but you don’t earn interest. You can also invest the money, with Oval helping you understand the risks.

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As always it’s good to shop around and find a method that best suits you.

You can find more information on the best budgeting apps and money-saving tips in our 48 ways to save money round up.

Do you have a money problem that needs sorting? Get in touch by emailing [email protected].

You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.

This post first appeared on thesun.co.uk

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