Notice savings account 📆
If you're looking into opening a savings account, by now you've probably noticed the multitude of options available to you, and it can be a bit overwhelming to decide on the most suitable type. That's why we've crafted these articles to guide you through the process of making informed saving decisions. In this article, we'll be exploring notice accounts.
What is a notice savings account?
A notice savings account, also sometimes called a notice account, is a type of savings account where you save and lock away your money, at a variable interest rate. What makes this type of account unique is that with a notice account, you can only access your money after letting your provider know you want to access it, and waiting out the entire required notice period for your account. Notice periods can range anywhere from 30 to 120 days. This means for example that a 35 day notice account isn’t a commitment to locking your savings away for only this many days, instead, it’s an agreement to have it saved for however long until you give notice, plus your notice period on top of that, which in this case would be 35 days later.
What interest do they pay?
Notice accounts have a variable interest rate. This means that the rate on your account can and will likely change over time. This could be driven by the Bank of England base rate, or your provider amending the levels of interest they’re offering to customers. These types of accounts generally let you earn a higher amount of interest on your savings compared to an easy access account, and lower rate than fixed rate accounts. The exact amount of interest you earn will largely depend on the notice period of the account you choose and your provider of choice. Generally speaking, the longer the notice period, the higher the interest rate offered by the provider, but with a bit more flexibility. Notice accounts can be suitable for those seeking a middle ground between instant access and fixed-term commitments in their financial strategy.
Why do people save?
Aside from having a nest egg for later life, saving for an expected life event, like buying a house, or setting aside an emergency fund in case the boiler breaks down, people save to earn interest. Most easy access accounts pay interest yearly, although you may be able to choose to have it paid monthly. This interest can then be useful for people who either want to use the interest to top up their income or build up their savings pot further, through the power of compounding.
What is compounding?
Compound interest, or compounding is the interest earned on both the original saving and the accumulated interest. In the context of saving, compounding is achieved by reinvesting interest earnings to increase your overall savings pot and enable further returns over time. For instance, if you save £1000 with a 6% annual return, the £60 earned in the first year is added to your savings pot, resulting in a larger pot of £1060. The subsequent interest is then calculated on this new amount, fostering a compounding effect. By continuously reinvesting interest, the savings grow exponentially. In a five-year scenario, the initial £1000 grows to £1338.23, with £338.23 attributed to compounded interest alone. This compounding gains momentum over time as more earnings are reinvested, illustrating the power of allowing savings to generate returns over time. Of course, this is just a worked example to show compounding in action. Real interest rates may change over time.
Advantages of notice accounts
Notice accounts provide a middle ground between instant access and fixed-term commitments, offering savers several advantages. One key benefit is the flexibility they provide with advance notice requirements for withdrawals, typically ranging from 30 to 90 days when compared to fixed rate accounts. This feature allows savers to plan and manage finances while still earning competitive interest. Notice accounts often offer higher interest rates compared to instant access accounts, enhancing potential returns. Additionally, these accounts promote disciplined saving by discouraging impulsive withdrawals, given the notice period requirement. They are suitable for savers who anticipate needing access to their funds but are willing to plan ahead. The balance of flexibility and interest earning potential makes notice accounts an attractive option for those seeking a controlled approach to savings with a reasonable level of accessibility.
Disadvantages of notice accounts
Despite their advantages, notice accounts come with certain drawbacks. The primary disadvantage is of course the requirement of advance notice for withdrawals, which may pose challenges for savers in need of immediate access to their funds. This limitation contrasts with the instant access flexibility offered by some other savings options. Additionally, notice accounts might not provide interest rates as high as those in fixed-term accounts, potentially limiting overall returns. The balance between accessibility and interest earnings in notice accounts may not suit everyone, and the necessity of planning for withdrawals could be viewed as an inconvenience. Therefore, savers should carefully weigh these disadvantages against their financial goals and liquidity needs before opting for a notice account.
How to choose the best provider
If you’re getting close to deciding on whether or not this type of savings account is for you, and you’ve had a look at some options on our notice savings account comparison table, be sure to consider these factors before going ahead with a provider.
Interest rates
Rates differ among providers, so be sure to compare them against one another and verify whether the rate includes a temporary new customer bonus rate, which may decrease after a few months.
Access
Review different notice periods offered by providers in the market and their corresponding interest rates to weigh up the best deal for you. Remember, with a notice account, you can access your money only after letting your bank know you want to and waiting out the entire required notice period.
Account Management
Consider how you want to manage the account, whether it's through an app, a web platform, or even in person, in a bank branch. Also bear in mind, how this relates to how you can get customer support if you have a question, or if something goes wrong.
Is now a good time to save?
Following years of historically low interest rates, there's a welcome shift as banks are now providing more attractive rates for savers, driven by the steady increase in the base rate by the Bank of England since early 2022, as a result of rising inflation rates. Although most savings products have higher rates, making it a comparatively better time to save than even a few years ago, it's crucial to consider potential shifts in interest rates, particularly given notice accounts have variable interest rates. Notice accounts however presently, like several other saving account types, offer the highest rates since the 2008 financial crash, providing a guaranteed source of returns on your money. Given the market volatility in global stock markets as of late, savings accounts like notice accounts have emerged as a pragmatic alternative for individuals looking to grow their money in a low-risk way.
Is a notice savings account for me?
It’s usually a pretty good idea to have some form of savings in place, and If you're keen to start saving gradually, with a competitive interest rate and without the temptation of being able to readily dip into your savings, a notice account might be a good place to start. However, if you have shorter term savings goals in mind, and want the ease of accessing your money at will, easy access savings accounts might be a better option. Whichever savings account you choose, an undeniable appeal to bear in mind is the low-risk nature of savings, particularly when compared to investing.