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Short-term bonds or notice accounts: which offer the best savings rate?

Find out which type of account offers the best returns

Atom Bank has launched two new fixed-rate bonds with terms of less than a year and eye-catching rates – but could similar products offer a better return on your cash?

The Durham-based bank now offers three- and six-month fixed-rate bonds, with competitive interest rates.

But these short-term deals function in a similar way to notice accounts, which are currently seeing an uplift.

Find out how the new Atom Bank range compares to notice accounts and which might be best for your savings.

New Atom Bank fixed-rate bonds

The new bonds from Atom Bank are available for three-month or six-month terms, offering competitive rates of 1.3% and 1.8% AER respectively.

The products can be opened with a deposit of as little as £50.

A fixed-rate bond allows you to lock your money away for a certain period of time. At the end of the term, interest is paid on your savings.

Most banks and buildings societies offer fixed-rate bonds that last for one to five years, although some can be much longer.

Shorter term fixed-rate bonds offer a compromise for savers who would prefer to have access to their money sooner, though interest tends to be lower.

The table below shows how much you could expect to get from Atom Banks’s 3 Month Fixed Saver and 6 Month Fixed Saver products if you deposited £1,000 for the full duration of the bond.

The return will depend on whether you elect to have interest paid monthly or annually.

Product AER Projected Balance
3 month Fixed Saver 1.3% £1,003.25
3 month Fixed Saver (monthly interest) 1.3% £1,003.26
6 month Fixed Saver 1.8% £1,009.02
6 month Fixed Saver (monthly interest) 1.8% £1,009.06

Best rates for notice accounts

Notice accounts offer similar access to your money as three- or six-month bonds – and the interest you can earn has reached new a high, according to research from Moneyfacts.

The figures show that a whopping 83% of notice accounts on the market currently pay more than the 0.5% base rate. This is up from only 53% of accounts that paid more than 0.5% in 2017.

Notice accounts allow you to make regular deposits throughout the year but require you to notify the bank before you can make a withdrawal.

The amount of notice you’ll have to give will vary depending on the account you choose.

Some can require up to one year’s notice before you can withdraw your cash.

The table below shows the average notice account interest rates for 2016-2018 and the percentage of the market paying over 0.5%.

2016 2017 2018
Average notice account interest rate 0.79% 0.59% 0.86%
% of the market paying over 0.5% 74% 53% 83%


Best short-term fixed-rate savings account

With both short term fixed-rate bonds and notice accounts, your money is held by your provider for a set period of time before you can touch it.

The main difference is that you can continue making deposits into a notice account, whereas you can only make a single deposit at the start of your bond.

The tables below compare the returns you could expect from Atom Bank’s short term fixed-rate bonds and the highest-paying notice account of an equivalent term with a deposit of £1,000.

Product  AER Projected Balance
 3 month Fixed Saver  1.3%  £1,003.25
 3 month Fixed Saver  (monthly interest)   1.3%  £1,003.26
OakNorth 90 Day Notice Deposit Account 1.69% £1,004.14
Product AER Projected Balance
6 month Fixed Saver 1.8% £1,009.02
6 month Fixed Saver (monthly interest)     1.8% £1,009.06
Secure Trust Bank 180 Day 1.78% £1,008.80
Source: Which? Money Compare, correct as of 12 July 2018

While there isn’t a great deal of difference between the returns you can expect, it’s worth considering your options when choosing a short-term savings product.

Notice accounts, for example, are more flexible than bonds and allow you to continue making deposits.

This means that you have more potential to boost your savings if you have additional money you’d like to add later in the year.

Finding the best savings accounts

The first step in finding the best saving account is to weigh up your circumstances and work out what method of saving works best for you.

For example, if you think you’ll need instant access to cash for emergencies, locking your money away in a five year fixed-rate bond may be unwise.

Once you have an idea of the type of savings products you need, shopping around is key.

Looking at the different deals on offer will increase your chances of getting a more competitive rate, which can boost your savings potential.

Be sure to pay attention to how interest will be paid into your account, and whether making withdrawals could affect your returns.

Which? Money Compare allows you to look at hundreds of providers and compare savings accounts to find the best deal.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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