Got a question about your savings? Email in and we’ll get one of our experts to reply. Anna Bowes, co-founder of Savings Champion, has given her guidance to a reader below. If you have a question for our experts, email us at money@inews.co.uk.
This week’s question: “I have my money in an easy-access account saving for a wedding next year. I’ll need the money in less than a year’s time so a fixed bond is not an option for me. I’ve realised you can now get far better rates by getting a savings account where you have to give notice before withdrawing cash. Should I switch my money to one of these – and is there anything I need to watch out for?”
These accounts offer a great halfway house between immediate access and locking your money up for a year or more. The competitive rates on offer can make this type of account useful for boosting your returns.
Today you can earn 5.09 per cent AER on a 90-day notice account with BLME. This is almost 1 per cent higher than the top easy-access account.
As the name suggests, these accounts require you to give notice in order to access your money without penalty.
The usual notice period ranges from 30 to 120 days, although there are some that require even more. Generally speaking, the longer the notice period, the higher the interest rate, although that is not always the case.
None of the high-street banks currently offer any notice accounts – which could be why there is a general lack of understanding of how these accounts work.
Many people wrongly believe that a notice account is a short-term fixed-rate bond; that the money will become available 30, 60 or 90 days after the deposit is made. But that’s not the case: you can hold a notice account as long as you wish, but you cannot get your money penalty-free until after you have given adequate notice on it.
For some people, especially those saving for something specific, not being able to access their cash immediately is important to stop them from dipping into their savings, so notice accounts can form a valuable part of a balanced savings portfolio.
If you ensure that you have rainy day funds in easy access accounts and longer-term money held in fixed rate bonds, notice accounts can be a good way of squeezing as much interest as possible on the funds that you don’t need immediately, but don’t want to tie up for longer periods.
There are also some shorter-term fixed-rate bonds that could be appropriate. At the time of writing, Monument Bank is paying 5.15 per cent AER on a six-month fixed-term deposit – slightly higher than the BLME.
The difference is that the former is a fixed rate, so will not change throughout the term, whereas the latter is a variable rate account, so if there are more increases to the base rate, it’s possible the rate could be increased further.
