🔔 Notice accounts fare better as savings rate cuts begin to hit

Following an unprecedented announcement to cut the Bank of England base rate not once but twice in one week in March, savings rates have - as you would expect - started to fall, with many fixed rate bonds and ISAs taking the brunt of the immediate action.

Since the beginning of March, just prior to the first base rate cut of the month from 0.75% to 0.25%, the average fixed rate bond rate has fallen by over 11%, from 1.24% to 1.10%. That said, best buy rates have been a little more resilient. At the beginning of March, the best fixed rate on the market was 1.65%; today this has fallen to 1.60% - a drop of just over 3%.

Rates on notice accounts have been the least affected by the base rate cuts, with the average notice account rate falling from 0.74% to just 0.71% (a fall of just 4% compared to 11% for fixed rate bonds).

Of course, we are yet to see the effect of the base rate cuts on existing savings accounts – we expect the current trickle could turn into a torrent as the month progresses.

But for many, the idea of tying up their cash to shield themselves from future cuts may simply not be possible, not least if you want to have some access to your money should you need it. Especially in the current climate, where this couldn’t be truer.

It’s great news therefore that the lesser-known notice accounts have been far more resilient for years. In fact, the average on-sale notice account rate is virtually the same today as it was five years ago! Compare this to the average fixed rate bond rate which was 1.62% in March 2015, but as mentioned above is just 1.10% today – 32% lower.

Savers can currently open a 95-day notice account paying as much as 1.60% AER – the same as the best 12-month <a href="https://paperleaf.ca/essay-editing/">use essay editor</a>fixed term bond.

Often overlooked but offering a compromise between tying your funds up for a fixed term and having immediate access to your funds, notice accounts could be an option to consider.

Interesting then as it also seems to be a market gaining popularity with providers.

Hot off the press, RCI Bank has launched its very first notice account – a 95-day notice account paying 1.40% gross/AER, on a minimum of £1,000 *.

Although not currently making it into our best buy tables, it is in the top five three-month notice accounts and RCI Bank has been a pretty safe pair of hands since it launched in the UK nearly five years ago.

RCI is probably best known for its easy access Freedom Savings Account, launched in June 2015. What made this account stand out, apart from its competitive rate, is that there was no bonus that would drop off after 12 months, no restriction in the number of withdrawals that can be made each year and all customers earn the same rate – existing and new.

This simplicity is something that RCI is extending to its new 95 day notice account, as it has pledged not to keep offering different issues – it will simply pay the same rate to all customers.

If this account behaves as the Freedom Savings account has and remains competitive, even if not market leading, then many may feel assured that they don’t need to be constantly reviewing and switching.

That said, better rates are currently available. The re-issue of the Investec Notice Plus account earlier in the week means that you can now earn up to 1.60% on the 95 day notice option of this account.

If you are not familiar with how a standard notice account works, it may be worth taking you through the concept.

The accounts pay a variable rate of interest and to access your money, you must give the provider the relevant number of days’ notice. In other words, you need to carefully plan your withdrawals, as you will not get your money straight away.

Generally speaking, the more notice you have to give, the higher the rate on offer – although this does vary wildly between providers. Typical notice periods range from 30 to 120 days, however there are accounts available with notice periods of six months or even a whole year.

Some notice accounts do allow immediate access to some or all of your cash but there will normally be a penalty equivalent to the notice period instead. This may even mean that you end up with less money than you started with, if you withdraw the money before it’s been in the account for longer than the notice period.

One of the reasons that notice accounts are an often-overlooked product type is that you will struggle to find a big high street brand offering a notice account - they simply do not compete in this area of the market. There is not one single notice account available from a high street bank and hasn’t been for some time.

So, this means you will need to consider using a lesser-known name if you are interested in a notice account, but it is worth remembering that they are subject to the same regulation and protection as the bigger brands.

All of the providers that feature in our best buy tables are part of the Financial Services Compensation Scheme (FSCS), so if you stick to the FSCS limit, your money is protected should the provider go out of business.

>> Take a look at the whole savings market with our independent best buy tables

*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).