Notice accounts are aimed for long term savers for savings which are separate from their day to day living expenses.
These accounts are designed to reward savers who provide banks with a reliable cash deposit. Banks make their money by taking your money and either investing or loaning it out at a higher interest. Obviously it is easier for the banks to do this when they know your £1000 deposit will still be there in 3 month’s time as opposed to it suddenly being taken out today.
As such notice accounts traditionally provide slightly higher interest rates, in return the terms of the contract state that you must tell the bank in advance if you wish to take money back. This ‘notice’ period varies from bank to bank but can range from 7 to 180 days, though usually it is between 30 and 90 days.
Withdrawal without waiting until the notice period ends incurs a charge or deduction from interest, depending on provider. As such it is not an account you can just ‘dip in’ to. Some banks offer bonuses for not removing any money for an entire year, however this will need to be checked with your account provider.
Many banks offer higher interest for the first few months or year, however after this revert back to a very low interest rate. Make sure you know that the long term interest rate for the notice account is before committing, as you may find yourself out of pocket.
The accounts usually ask for a fairly high amount to be invested to open the account, with £1000 being the minimum for most, though some ask for £10,000.
The interest rates offered for these kinds of accounts are not as competitive as they used to be, with banks offering similar interest rates on current accounts. As such the appeal of notice accounts has diminished over time.
Though still viable for the prudent long term saver, it must be noted that there are many other options for individuals who are happy to bury their cash for a long time in return for higher yield.