The savings account market has become a very different place in the past 12 months, as we’ve seen rates rising across the board from fixed-term bonds to easy access accounts.
But, there is one savings account that hasn’t received the same attention as the others, even though it has experienced similar growth in interest: the notice savings account.
Notice savings accounts might not make the headlines, but that doesn’t mean they’re not worth your attention. In fact, this type of savings account acts as a middle ground between easy access and fixed-rate, so it could work well for many savers.
In essence, a notice savings account allows you to withdraw money whenever you like, but you have to give the bank an agreed amount of notice or you could face penalties. Notice periods can vary from seven days up to 180 days, and the interest rate will change depending on the account you choose. It’s worth adding that if you choose a higher notice period, that doesn’t necessarily mean the interest rate is higher, so it’s always worth comparing savings accounts to find the best deal. Interest rates also act in a similar way to an easy access account as they are normally variable and not fixed, so the rates could go higher or lower depending on the market.
Due to its notice period, this savings account is great for preventing impulsive purchases, as its terms and conditions can act as a buffer for hasty decisions.
If you are thinking about a notice savings account, ask yourself what you’ll need the money for and when you’ll need to access it. This will then help you to find the best account. For example, if you are saving for a holiday in the summer you’ll know when the remaining balance will need to be paid.
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The snag with notice savings accounts is that you might not be allowed to withdraw your money without abiding by the notice period or if you ignore the notice period you’ll face a hefty penalty. This means it’s not ideal for an emergency fund, and it's more suited to a future savings goal.
As with all savings accounts, it’s important to read the terms and conditions and understand what commitment is involved before you take the plunge.
At the time of writing, the maximum interest rate on a 7-day notice savings account is 2.91% and this comes from Zopa Smart Saver (Boosted Pot - 7 Day Notice).
In comparison to February 2022, the maximum interest rate on a 7-day notice savings account was 0.75%, which is an increase of 381%. There is a similar story across all types of notice savings accounts as for a 120-day account you can currently get an interest rate of 3.5% with Furness Building Society 120 Day Notice Saver, but a year ago the maximum interest rate was just 1%.
|Notice duration||Average interest rate in Feb 23||Average interest rate in Feb 22||% change from Feb 22 to Feb 23||Maximum interest rate in Feb 23||Maximum interest rate in Feb 22||% change from Feb 22 to Feb 23|
Data sourced from Defaqto. Exclusions include existing customers and area restrictions.
It’s clear that interest rates have improved over the past 12 months, but does that necessarily mean it’s the right account for you?
Well, it’s important to consider that the highest interest rate for an easy access account is currently at 3.35% with Yorkshire Building Society’s Rainy Day Account (Issue 2). Chip’s instant access account is also offering a competitive 3.15%. The 7-day interest rate is lower than both these options, so it might still be a good idea to opt for the easy-access as you’ll have more flexibility.
On the other hand, if you are happy to put your money away for a longer period, the 120-day account has a higher interest rate and you’ll be able to access the money after roughly four months. This is a shorter commitment to a 1-year fixed term bond, but if you can wait longer you’ll be rewarded with a higher interest rate of around 4%.
The interest rates are very close, so it’s always a good idea to think about when you’ll need to access the money and if there are any other limitations in terms of withdrawals.
If you are clever with your cash, you can use a notice savings account to grab a higher interest rate while taking advantage of a shorter term and increased flexibility in comparison to a fixed-rate bond.
Saving for your dream can be tough; our savings guides will help you determine the fastest route to your savings target by maximising the potential of your nest egg along the way.
As a trained journalist, Lucinda has spent the past 10 years writing and editing content for regional and national titles, including The Mirror, WalesOnline and Manchester Evening News. She is now a personal finance editor and specialises in savings, helping people to make confident financial decisions so they can save for what matters most.