5 Minute Guide to:
Notice Accounts
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Last update : July 2010
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A Notice account is a type of savings account where -
- Money cannot be withdrawn immediately - Instead a notice has to be given to the bank of usually between 30 and 180 days (most though are between 30-90 days)
- Higher interest rate - However to compensate for this the interest rate is normally higher than for other savings accounts
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- Money can still be withdrawn quickly but with a financial penalty - Most Notice accounts will come with a get-out-clause so money can still be withdrawn at any time in case of an emergency. However, a penalty will then have to be paid which is normally a loss of between 30 ad 90 days worth of interest
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These styles of savings accounts used to be far more popular in the past but due to increased competition in the banking and specifically the savings market many banks have phased them out.
Having said that it's worth keeping an eye on the current market because there are normally a couple of high paying accounts open to savers and that adds to the overall flexibility of the savings market -
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| How do they work |
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Just like any other savings account - pay money in and then receive a rate of interest.
- Interest rate - The rate on most Notice accounts will be variable, see below for more details
- Notice period - This is the most important point to consider and it reflects how many day notice you need to give the bank should you want to withdraw money
- 30 - 90 days is the norm - Most accounts have a 30, 60 or 90 day period and normally the higher the interest rate the longer the notice period. For example -
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- A 30 day notice account might pay 3.0% interest
- 60 days notice at 3.25%
- 90 days at 3.5%
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What does variable interest mean
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As the name suggests a variable interest rate means the interest rate can vary, moving both up and down over time. Any movement in the interest rate will normally be down to either -
- A change in the official bank of England base rate, and/or
- The bank or building society altering its own rate
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| However, official interest rates don't move that much, perhaps 2-3 times a year (assuming the economy is not roaring ahead of getting crushed). So the rate paid on most Notice accounts will be relatively stable. What is interesting to note is that by law the banks have to send a letter telling their clients when the rate has either risen, or more importantly, fallen. |
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| It is still possible to withdraw money immediately - but a penalty will have to be paid |
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Money is not completely locked up with a notice account and can still be withdrawn immediately without the proper notice period given. However, you will have to pay a financial penalty, usually the loss of 30, 60 or 90 days worth of interest.
Therefore notice accounts are best used for savers who know they won't need access to their money in a hurry. One way around this problem if you have large savings is to use a combination of the different savings accounts, perhaps -
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- 50% - 60% of the total savings deposited in instant access accounts
- 20%-30% in fixed rate savings bonds, and
- The balance in a Notice account
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| Structuring a savings plan in this fashion means you'll get an excellent balance between the highest interest rates but with withdrawal restrictions, and flexibility, ie being able to withdraw large amounts of money at short notice |
| Advantages |
- Variable interest rate - Can be both good news and bad. The good is that if official interest rates are raised it's normally better to have money deposited in a variable rate account as theoretically the account's interest rate should also rise to reflect the positive base rate movement
- Simple products - When it comes to Personal Finance the simple products are normally the best as the banks can't hide any potential disadvantages in the smallprint - See secret number 3 - Buy simple and flexible which is one of this site's 10 Secrets to Good Personal Finance
- Adds flexibility to a savings plan - Savers with more than £5,000 can split their cash around into the different styles of savings account including Notice ones
- Money is guaranteed up to £50,000 - The government guarantees all savings within a banking group up to £50,000
- Easy to open and run - Opening an account normally takes less than 10 minutes if done online or over the phone. Also, internet banking is a feature, see below
- Internet banking - Most of these accounts come with internet banking and that's a great way to efficiently manage your money and financial commitments. Personally I love internet banking. See - 3 easy steps to safer internet banking
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| Disadvantages |
- Variable interest rate - It can be a negative because if official rates drop so will the rate paid on an instant access account. In such a case savings are sometimes better split up and some deposited in fixed rate savings bonds discussed on this link
- Length of Notice period - It's only a disadvantage if you need to access your cash in a hurry. If in doubt it's therefore better to go with an instant access account
- Lack of choice - Many banks and building societies don't offer Notice accounts anymore and this limits our choice
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| Where to buy |
| Only some banks and building societies offer Notice accounts, they used to be far more popular 10-20 years ago. And as a good rule of thumb the Building Societies normally offer far better rates of interest.
To find the latest and best deals check out our Top 3 Notice Accounts page which is updated every Monday.
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| How to buy |
| Most accounts can be opened either online, via the phone or in branch. This means it's possible for someone living in Hampshire to easily open an account with a Newcastle based building society.
Overall the account opening procedure is normally simple although you might be required to send some ID to the bank or building society in question. What they'll usually ask for is a photocopy of your passport/Driving licence as well as a recent utility bill or bank statement to prove your present address (note, mobile phone bills are normally not accepted).
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| Buying tactics |
| Balance the 2 important points - The interest rate and the Notice period |
- Interest rate - It makes sense to go for the highest, but this has to be balanced with
- The Notice period - No point going for the best interest rate if the account has a 90 day notice period which could be too long for you. It would therefore probably make better sense to go for a lower interest rate but just a 30 day notice period.
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| Are Notice accounts right for you? |
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Locking your money up in a Notice account for between 30 - 90 days is only a good idea if you've -
a) Got savings of more than £5,000, and
b) Won't need short term access to it
Flexibility is always the goal to aim for with your savings. So those with large amounts of money might be able to lock up parts of their cash (I'd recommend between 25% - 50%) in either Notice accounts or Fixed Rate Savings Bonds - 5 minute guide.
But if you've less than £5,000 then the prudent decision would be to keep the cash 100% flexible and only save via Instant access accounts - 5 minute guide
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| LearnMoney.co.uk comment: |
| Overall I think Notice accounts are a bit antiquated and don't hold too much of an advantage over a standard instant access savings account. Yes, they'll normally pay a slightly higher rate of interest but only be about 0.25% - 0.5% at the most.
But is it worth locking your money up for such a small amount (0.25% interest is £25 on £10,000 per year)? Possibly yes, but only if you have large savings. However, for most of us, why complicate matters so go with the simplicity of instant access. See secret number 3 - Buy simple and flexible which is one of this site's 10 Secrets to Good Personal Finance
PS. Don't forget to find the best savings deals head over to the LearnMoney.co.uk Top 3 Savings Accounts section which is updated every Monday and includes -
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Current Savings Deals
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