To give notice or not to give notice? That is the question that many savings accounts users must ask themselves. Notice accounts prevent hasty, spur-of-the-moment spending. But in an emergency, you simply can’t get immediate access to your money.
Here at Moneymagpie, we’ve put together a quick guide to notice and no-notice accounts. Give it a quick glance before you decide which sort of savings accounts are right for you.
- Instant access savings
- No notice accounts
- Notice accounts
- Suspended withdrawal penalties during the coronavirus crisis
- Best rates around
Instant access savings accounts typically offer the lowest savings rates around. However, you can add and withdraw money whenever you like, as many times as you like. Think of it more like a savings jar: you won’t get a lot of interest, but you can control your money more easily. If you’re a big spender, it’s a good way of separating spare cash from your current account so you don’t overspend.
All high street banks offer a basic instant access savings account – and it’s easy to set them up online. In fact, some – like Nationwide’s Flex Regular Saver account currently offers 3.0% and is available to existing current account holders. That means you can hold their basic bank account (available even with bad credit) and grab the savings account to go with it, too.
What are they?
No-notice accounts are flexible, instant-access savings accounts.They’re also called Limited Access Savings accounts. The trick is, banks use different methods to make it harder for you to make withdrawals.
Some banks set high minimum withdrawal amounts. That’ll prevent you from taking out money unless you have lots in your account.
Others set a maximum amount of penalty-free withdrawals per year. This limits the amount of times you can take out money without sacrificing interest.
And many banks set minimum balances for this type of savings accounts. If you don’t have that amount in the account at all times, you may lose the interest you’ve earned.
These terms and conditions mean that in practice, most no-notice accounts are somewhere between instant access accounts and bonds.
What are the rates offered?
The interest rates are sometimes slightly higher than those offered for instant-access accounts. But the fact that you can only get money out a few times a year means no-notice accounts are much more restrictive.
Who are they for?
Anyone! Some accounts are specifically for children under 16 and others are for people aged over 16. If you save into a child’s account, when they turn 16 the account automatically rolls over into an adult one – and they can access and control their money. And the initial deposits can be as low as £1, so you don’t need lots of cash to open one up.
Things to watch out for
A bonus rate is an extra bit of interest (say 0.5% AER) that has been added on to the normal rate for a set period of time.
These rates often serve to push accounts to the top of the comparison tables. However, once the bonus rate ends, your rate is likely to drop well below those offered by the competition.
Get the account while the bonus rate is still going. But be sure to keep track of when the rate ends and change to another account with a more competitive rate.
Some accounts masquerade as no-notice accounts when they’re actually closer to being regular savings accounts.
These boast instant access, which technically you do have. If you need to make a withdrawal, you can. But for any month that you make a withdrawal, your interest rate will fall from its normal rate to a meagre 0.1% AER.
So although these accounts appear to be instant access, they’re designed to make people keep their savings in the bank until the end of the account term. Sneaky!
What are they?
Notice accounts let you save little bits here and there, as well as big lump sums. As the name suggests, you have to give notice before you make any withdrawals. Otherwise you’ll be penalised – often with a loss of interest. They’re also called Fixed Term Savings accounts.
The amount of notice you have to give depends on the particular account you have. It usually ranges from a couple of days to three months.
How do you give notice?
Most notice accounts are controlled by post, so you have to send a letter to your bank informing them of your intention to withdraw the money. Your notice period will then start from the date the bank receives this letter. May are now moving to online processes, so check first if you prefer to bank online instead of by post.
Who are they for?
Notice accounts are great if you want to stop yourself spending your money on things you don’t really need. Having to give notice or sacrifice your interest rate means you’ll probably think twice before making any hasty withdrawals.
And, unlike a bond, if there’s a real emergency you can take your interest rate cut and get your hands on the cash relatively quickly.
If you have the self-discipline to leave your money alone, notice accounts probably aren’t for you. Instant-access or no-notice accounts offer equally competitive interest rates, without the faffing around with notice periods.
But if you need to protect your money from yourself, a notice account is a good option.
Things to watch out for
Make sure you understand the exact length of your notice period
This may sound silly, but does a 60-day notice period mean 60 days or 60 working days? It’s always worth going over the terms and conditions carefully before you set up your savings account.
Check what the early withdrawal penalty is
You’ll often lose the amount of interest you’d have earned during the notice period. So, if your notice period is 30 days, your bank will subtract the sum of 30 days’ interest from the amount you’re withdrawing from your account.
For example, if you’re withdrawing £1,000, it would be 30 days’ interest on £1,000.
For some accounts, the penalty for early withdrawal is even higher. It’s essential that you know exactly what penalties you could face for early withdrawal.
With the Government closing all non-essential businesses on 23rd March 2020, many people are worried about paying their rent, mortgage, and living expenses. The Job Retention Scheme will mean the Government can pay businesses grants to cover 80% of employee salaries for at least three months – but this may not cover all of your costs.
During this time, all major banks have announced a temporary suspension of penalties for accessing fixed term savings accounts. You will lose the interest payments on anything you take out, of course – but you won’t face a hefty charge for accessing your money straightaway. You won’t be charged a penalty for taking money out immediately from, for example, a 90-day notice account – you’ll get your cash straight away.
This is a temporary measure, initially for three months from March 2020 – but could be extended as the coronavirus crisis continues.
With the Bank of England rate slashed to a historical low, it’s unlikely there’ll be any new savings accounts with decent rates in the near future. Shop around for the best deal you possibly can; if you have to put your money in a savings account for an emergency buffer, find one that allows the access you need. The easier access, the lower the rate – it’s as simple as that!
If you’ve got more than enough cash to spare, right now it’s a good time to learn more about investing in stocks and shares. The market is ‘bottoming out’ at the moment – making it a great time for you to buy shares while they’re cheap! You’re likely to (eventually) see returns between 5% – 7% investing this way – much better than any savings account can offer. Check out our investing section to learn more about how to get started with the stock market.