Notice accounts are a neat way to save up money. They are not too common or often spoken about.
A notice account is a savings product offered by certain banks to individuals interested in accessing greater interest rates. They work much like a normal personal savings account, where individuals can store up extra funds and earn a specified interest percentage per annuum but differ in the way that money can be withdrawn. With a notice account, before any withdrawal can be made, the individual would be required to inform the bank days or even months in advance of the intended date of withdrawal.
These accounts are best for longer term savings as the funds are essentially locked away with no possible access for extended periods. Common notice periods for these accounts are 35 days, 45 days, 95 days and 120 days. As can be imagined, the interest rate on the 120 day notice accounts are higher (marginally).
These are still more flexible than fixed rate bonds however and thus are a middle ground between government bonds and a traditional savings account.
Usual the rates for these hover around:
Savings Account - 0.5%
Notice Accounts - 3%
Fixed Term Government Bonds - 5%
Notice accounts can be employed also with the intention of curbing spontaneous spending as they create an extra barrier to irrational decision making. With the notice period, any withdrawals will be premeditated and avoid individuals dipping into savings for things like food, fashion trends and other non essential siphons of money. We all have our vices.
The main providers of notice accounts in the UK are: Lloyds bank, Shawbrook, Paragon and Raisin. The interest rates and notice periods offered by each are different but are all within a similar range. Their terms also slightly differ, some notice accounts charge a fee for withdrawals before a certain period, so if this is something you are interested in, do a little shopping around and a lot of research.
Notice accounts allow you to effectively lock away your money for future goals but still allow access in the case of a rainy day or emergency. However, much like anything, this mode of practice comes with it's pros and cons. They are not for everyone and individuals should consider the following before committing to them.
Pros:
- Allows savings to grow undisturbed
- Great interest rate with minimal risk
- Still have access to money
- Great accountability tool to keep you disciplined and cut out impulse purchases
Cons:
- Emergencies - some events in life cannot wait 45 days to be fixed.
- Interest rate fall off - with many of the accounts, the interest rates drop to a lower level after 12 months. (You could switch to a different provider after this period)
- Fees or even closed accounts for short, emergency withdrawals
Another tool in your arsenal for getting your finances in check. You would want to also have an easy access savings account in parallel to make this work effectively. One for longer term saving with better interest and one as an emergency fund as Dave Ramsey would advise.
Withdraw quickly, Do you think they'd notice?
