Some people are put off the idea of saving because they believe (wrongly, as it happens) that any of their money deposited in a savings account is certain to be difficult to get at and withdraw if an urgent need for the cash arises. Yet other people might be put off the idea of a savings account because they believe that easy accessibility to the savings and an ability to withdraw funds when they might need them undermines the very discipline they need to save!
In both cases, of course, there’s a solution that should encourage anyone to deposit some of their money in a savings account. Despite the name, even a notice savings account can sometimes grant instant access to your funds; whilst the normal period of notice required will give determined savers the chance to think again about withdrawing any cash and provide just the sort of self-discipline they need to keep their savings intact.
The whole idea of a notice savings account, of course, is that the saver is given a better than normal rate of interest in return for providing the bank or building society where the account is held, a period of notice immediately preceding any withdrawal of funds. The deposit-taker can require any period of notice between seven days and 120 days, but the most usual period is one of between 30 and 60 days notice. Provided the agreed period of notice is adhered to, there is no penalty (fee or lost interest) on the notified withdrawal.
Nevertheless, banks and building societies operate in the real world and it is of course your own money that is being held in the savings account. They recognise that there will be times when you need your money at short notice – sooner than the agreed period of notice. In these instances, you will generally be granted instant access to make a withdrawal, but there will be a penalty – most usually in the shape of lost interest on the amount withdrawn, for the period for which notice should have been given. For example, if you demanded instant access to withdraw £1,000 from a 60-day notice account, you would typically lose 60 days of interest on £1,000.
Provided this is not the sort of withdrawal you plan on making too often, a notice savings account would probably still represent a better deal than an instant access account which imposes no penalty on withdrawals whenever you want to make them. The reason, of course, is that the notice account generally offers a better rate of interest than the instant access account. By how much, will of course determine the number of times you’ll choose to bear the penalty of instant withdrawals from a notice account.
Pros and cons
To sum up the advantages of a notice savings account, therefore, you will enjoy:
- interest rates that are generally higher than instant access savings accounts;
- because you have to give a period of notice of any intention to make a withdrawal (or face a penalty), people determined to save may have second thoughts, avoid withdrawing from their savings account, and carry on saving;
- if the base rate fixed by the Bank of England is increased, your bank or building society will generally increase the rate on your savings account also (within a month).
The downside to the higher-paying notice savings account is that:
- you will pay a penalty if you demand instant access to your funds. this is usually in the form of a loss of interest on the sum taken out for the period of notice that would otherwise have been required on that account;
- a variable rate of interest means that if the Bank of England base rate goes down, the interest rate on your savings account is also likely to be reduced.