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Notice accounts

A notice account requires you to ‘notify’ the savings provider in advance every time you want to make a withdrawal

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Introducing flexibility to your savings so you can access them when you need to, easy access savings accounts make for a great emergency cash cushion

If you’re looking for a home for your savings and won’t need to get your hands on your cash immediately, a notice account is worth considering.

As its name suggests, a notice account requires you to ‘notify’ the savings provider in advance every time you want to make a withdrawal. The idea is that, in return, you get a higher interest rate than you would on a standard easy access savings account.

The shortest notice period available is usually 30 days although some notice accounts require as much as 120 days’ notice. Some notice accounts also restrict the amount of withdrawals you can make in any one year, so read the terms and conditions carefully.

Tying up your savings

If you have to make a withdrawal within the term you signed up for, you will be charged a penalty, usually in the form of forfeiting interest on your savings.

Fixed rate bond providers often taper the size of this penalty downwards as the term of the bond progresses – but then in the first 12 months you may not be able to access your cash at all.

So the message is clear; don’t opt for a fixed rate account if there’s any chance you’ll need your money during the account term. And always read the small print carefully.

Benefits of notice accounts

After the potentially higher interest rate, the biggest advantage of notice accounts is that – while you can pay in cash when you want to – you won’t be able to take money out of your account on a whim.  

Check the account terms carefully before choosing where to put your savings

So, if you tend to rely on your savings to rectify overspending in your current account for example, notice accounts are a great idea.

However, they only work if you are certain you won’t need instant access to your cash. Most notice accounts impose hefty penalties, (usually as loss of interest) if you do make a withdrawal without giving the required notice. And some accounts won’t permit withdrawals at all if you can’t give notice. This means you may have to close the account early, which again, will mean paying penalties.

Before you open a notice account, it’s a good idea to have some savings in an easy access account that you can grab immediately to pay for unexpected expenses such as car repairs or boiler breakdowns. 

Beyond this, notice accounts are best suited to people with longer-term savings goals – perhaps a property deposit or wedding – and can accurately plan when they need their money.

What else you should know

Although in theory notice accounts pay higher returns than easy access accounts, this isn’t always the case, so make sure you compare the rates available from other types of accounts first. 

You might find for example, that you can actually earn a higher rate of interest from an easy access account, which requires no notice at all. And these days it’s also worth looking at current accounts as many pay higher rates than easy access accounts on credit balances up to a certain limit.

Since the introduction of the new Personal Savings Allowance (PSA) in April 2016, banks and building societies have paid interest on all savings accounts gross, or before any tax is deducted. The PSA means that basic-rate taxpayers can earn £1,000 of savings interest without the taxman taking a slice, and higher rate taxpayers can earn £500. Additional rate taxpayers are not eligible for a PSA. If the interest you earn exceeds these limits, any tax you owe will usually be collected via the Pay As You Earn (PAYE) system or via your self-assessment tax return.

If you do decide a notice account is best, it doesn’t necessarily follow that the longer the notice period, the higher the returns will be. You might find that a 30-day notice account pays you more than a 90-day notice account, so again, check the account terms carefully before choosing where to put your savings. 

As with all types of savings accounts, there may be a minimum opening deposit – which could range from between £1 and £1,000, for example. Some notice accounts will also include an upfront bonus (which could be fixed or variable) in the rate which drops off after say the first 12 months. And your rate may also drop if your balance falls under a certain floor. Again, be sure of these terms and conditions before signing up.

Finally, many notice accounts can only be operated in branches or by post (often with a passbook), so if you prefer to manage your finances online, this arrangement might not suit you. 

Review your account

Even though the nature of notice accounts can make it easy to forget about that slice of cash, it’s worth regularly reviewing how much interest you are earning. Returns on most notice accounts are variable, which means they can change at any time. So if your rate is no longer looking competitive, be sure to switch to a better deal.