Savings Explained
Notice
Accounts
If you do not need immediate access to your savings a
notice account
is worth considering. These products permit withdrawals but you must give a certain
number of days’ notice – usually 30 days, 60 days, 90 days or 120 days - before
you can access your money. If you need your money more quickly than that you will
face a penalty.
As with easy access accounts, interest rates tend to be variable.Traditionally,
notice accounts have paid higher rates of interest than easy access accounts and
the longer the notice period, the higher the rate. However, that is not necessarily
the case any longer. The best easy access accounts currently offer rates on a par
with the best notice accounts, so you may find there is no need to sacrifice flexibility
in order to maximise returns. It is therefore important to
compare rates
on both types of product when looking for a savings account.
Fixed
rate bonds
Traditionally, notice accounts have paid higher rates of interest than easy access
accounts and the longer the notice period, the higher the rate. However, that is
not necessarily the case any longer
Available from banks and building societies,
fixed rate bonds
pay a set amount of interest for a certain period of time. At the end of the term
you get your capital back, plus interest.
The length of the term can be anything from six months to five years. Generally
speaking, the longer the term, the higher the interest rate.
However, you cannot usually access your money during the fixed rate term, so this
type of account is only worth considering if you have money you can afford to lock
away.
Fixed rate bonds are also only suitable for those with a lump sum to invest as most
do not permit you to add to your initial deposit. The minimum deposits can be quite
high - £10,000 is not uncommon. However, many accounts have lower entry requirements
than that.
You cannot usually access your money during the fixed rate term, so this type of
account is only worth considering if you have money you can afford to lock away
If you are considering investing money in a fixed rate account, you need to think
about the general interest rate environment. Fixing your savings rate can be a great
idea, particularly if interest rates are falling. However, there is a risk: you
could be stuck on an uncompetitive rate if interest rates rise significantly during
the fixed rate term.
Consequently, one and two-year deals tend to be most popular because if interest
rates do rise sharply, you will not be tied in for too long.
Continue to Page 3 to Regular saver accounts >>
