Guide to notice accounts
- Interest rates on notice accounts can be attractive - but don't assume they're better than alternative options
- There'll be a pre-defined time delay before you can get access to your funds
- Think about the pros and cons of an Isa notice account
Do you want an account that allows you access to your savings but pays a better rate of interest than most?
Could you manage to wait a few weeks or months before getting your hands on your money?
Then it's worth considering a notice account.
A notice account is one where the bank or building society requires advance notice before you withdraw any of your money, usually between 30 and 90 days.
Some accounts are even more restrictive and demand as much as 180 days' notice before you make a withdrawal.
You'll also need to specify the amount you want to withdraw in advance.
Should you require quicker access to your funds you may be subject to a fine and/or interest penalty - or you may not be able to get such access at all.
Why use a notice account?
There are two good reasons to use a notice account.
One is that they often (although not always) pay higher rates than you could get with a less restrictive option, such as an easy-access account.
As a general rule, the more restrictions you're willing to put up with, the higher a rate you can earn.
The other reason is that it puts a barrier between you and your money, reducing the temptation to withdraw and spend it on a whim.
Who uses notice accounts?
Notice accounts are not as popular in the UK as easy-access options, but the restrictions can actually suit some savers.
For example, first-time house buyers who are carefully saving up a deposit and will have lots of warning before they need to withdraw it may be attracted by such an option.
When is a notice account the wrong choice?
You have to decide yourself if a notice account is right for you and your finances.
- Cash ISA
- Saving and Isa guides
However, there is one situation where it's almost certainly wrong, and that's as a place to stash your emergency savings fund.
Your rainy-day pot needs to be easily accessible so that you can draw on it immediately if disaster strikes.
Most experts suggest saving the equivalent of three-to-six months'-worth of salary as ready cash you can use in a crisis.
Locking away your emergency cash in a notice account would restrict your access in times of need, so consider an interest-paying current account, an instant-access savings account, or one that limits the total number of withdrawals rather than imposing a time limit.
It can be tempting to use a notice account to put your money at a distance and avoid spending it by not thinking about it
Things to watch out for
As with any financial product, there are a few catches to watch out for:
Many savings account offer a bonus period during which they pay a higher rate to attract new customers.
However, at the end of the term that rate could fall - it's important to be ready to compare and switch again when that happens.
Some notice accounts limit the number of withdrawals you can make in a year and will charge you and/or pay less interest if you exceed that.
Many notice savings accounts will require a minimum deposit to qualify, often as much as £1,000.
Many notice accounts are branch or postal access only, so if you like to manage your money online then make sure you're clear on your access when choosing your account.
Don't assume a rate is good because the account restricts your access - always compare it with other options on the market.
You may find an easy-access account or even a current account that pays a comparable rate, and these may suit your needs better.
It can be tempting to use a notice account to put your money at a distance and avoid spending it by not thinking about it. But that's no reason to neglect the interest rate.
If your account has a variable rate then do check it regularly and compare it to the rest of the market - you want to be sure that you're earning a competitive amount on your money.
Isa notice accounts
- You don't pay any tax on the interest you earn
- It can make sense to use your Isa allowance as a longer-term saving option
Isa notice accounts
There's a widely held misconception that Individual Savings Accounts (Isas) are complicated.
In reality they're as simple to use as a standard savings account, and you won't pay any tax on the interest you earn.
You can save your Isa allowance into a notice account, meaning that the taxman can't touch the returns you earn.
This could be a smart move, given the long-term benefits associated with tax-free saving and compound interest.
Finding the right notice account
With any restrictive savings account, you need to know exactly what you can and can't do with your money.
You also need to be confident that the rate makes it worth locking your cash away, so take the time to carefully compare savings accounts.
You can do so simply and quickly using the Gocompare.com comparison service, which allows you to check the rate, term and minimum investment.
You can also easily see more information on any account you're interested in, including more detailed information on the notice period and any other restrictions.
Peer-to-peer notice accounts
Many peer-to-peer lenders offer notice accounts and the rate of return on such products can be very attractive. Such options are certainly worth looking into, but remember that this is a riskier investment than a traditional savings account.