Savings rates continue to fall: could a notice account be the best bet for your cash?

The coronavirus crisis has ushered in a wave of falling savings rates and withdrawn accounts, but opting for a notice account could provide an alternative for those who don't want to lock up their cash to get a better rate.

If you want to be able to access your money in case you need it but still want a chance to make a decent return, then a notice account could be the answer.

Here, Which? weighs up the pros and cons that come with notice accounts and reveals where you can find the top rates.

• Read the latest coronavirus news and advice from Which?

Notice account rates hold up better than instant-access

Notice accounts occupy the space between instant-access accounts and fixed-term accounts, both in how accessible your cash is, and the interest rate you'll receive.

There tend to be fewer accounts to choose from, and the rates on offer don't usually grab any headlines, but competitive accounts can often be found.

The graph below shows how average rates for notice savings and cash Isa accounts have fared over the past year, in comparison to instant-access accounts, using data from Moneyfacts.

As the graph shows, all average rates are on a pretty steep decline - particularly since the coronavirus lockdown began at the end of March.

Since April, average notice savings account rates have decreased by 29%, while average notice cash Isa rates have dropped by almost 35%. But it's not as steep a fall as instant-access savings accounts and cash Isas, which are down 41% and 43% respectively.

In fact, the average rate for a notice account is now twice that of an instant-access savings account.

There is, of course, a lot of variation within these averages.

What are the best notice savings accounts?

According to data from Moneyfacts, there are currently 92 notice accounts on the market; 42% fewer than there were this time last year.

These include 78 savings accounts and 14 cash Isas, withnotice periods ranging from seven days to one year.

The table below shows the top-rate savings accounts, in order of notice term.

_{*Expected Profit Rate. Source: Moneyfacts. Correct on 12 June 2020; rates are subject to change.}

As the table shows, it doesn't always follow that the longer the notice period the more interest you'll receive. You can currently earn the same amount of interest with the top 30-day notice account, as the top 60-day and 90-day accounts.

Make sure you can fulfil an account's minimum deposit requirement before you sign up; the majority of the accounts here require at least £1,000, and you'll need at least £10,000 to open the account with the Bank of London & The Middle East.

The Bank of London & The Middle East is an Islamic bank, and its sharia-compliant account offers an expected profit rate (EPR), rather than an annual equivalent rate (AER).

So, could you earn more with an instant-access account? The current top rate is 1.16% AER, which beats the top rates for 30, 60 and 90 days notice - but opting for more unusual notice term, such as 45 or 95 days, could get you a better rate.

• Find out more:how to find the best savings account

Top-rate notice cash Isas

This table shows the top-rate cash Isas, also in order of notice period. These accounts work in the same way as savings accounts, but as they are cash Isas any interest earned is tax-free, and additional Isa rules apply.

_{Source: Moneyfacts. Correct on 12 June 2020; rates are subject to change.}

You'll notice that the top cash Isa rates are all lower than their savings account equivalent, they do have the added benefit of being tax-free.

So, if you're likely to exceed your personal savings allowance (£1,000 for basic-rate taxpayers; £500 for higher-rate taxpayers), or you don't receive any allowance due to paying additional-rate tax, then the benefit of saving on tax could outweigh what you miss in interest.

These accounts all fall short of the top-rate instant-access cash Isa, which is 1.1%.

• Find out more:how to find the best cash Isa

Should you get a notice account?

As with any kind of savings account, you'll need to weigh up the pros and cons of a notice account before transferring your cash into one.

As well as making sure that the account can be opened and managed in the way you would like (i.e. is it just online?), read up on the account's terms and conditions as they can vary between providers.

Advantages

• You can usually make an unlimited number of withdrawals: there may be exceptions to the rule, but in general, notice accounts will allow as many withdrawals as you like - you'll just have to wait a set time to receive the money. This is ideal for those who know in advance when they'll need the cash - for instance, if you're saving to buy Christmas presents and don't need to spend until, say, November.
• Interest rates are sometimes better than instant-access accounts: in theory, the fact that you have to wait to receive your money is often rewarded with a higher interest rate.
• Waiting for your cash might help you save: having to wait at least seven days to receive your funds might help stop impulse purchases, therefore keeping your savings intact for the things you really need.

Disadvantages

• You can't get your money instantly: a notice account may not be the best bet for an emergency savings pot. If you quickly need cash for something like a broken boiler, you won't want your savings stuck in a 90-day notice account.
• Rates aren't always worth the wait: plenty of accounts with long notice periods don't pay accordingly for the inconvenience, so make sure whichever account you choose is competitive and can't be beaten by an account with fewer restrictions.
• Better interest rates aren't guaranteed: we found five accounts offering a higher AER than the current top-rate instant-access account (1.16% AER for savings accounts; 1.1% AER for cash Isas). And to benefit from these rates, you'll have to commit to giving at least 45 days' notice before receiving your money.

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? Money Compare is a trading name of Which? Financial Services Limited.