The rates of interest on offer from notice saving accounts have hit a two-year high, according to financial data analysts Moneyfacts.
That’s at a time when the rates on offer from other forms of savings account have generally remained fairly static. Part of this is down to challenger banks, such as Charter Savings Bank and Secure Trust Bank, targeting the notice account sector and launching table-topping deals.
So with competition pushing up the returns on offer, now is a good time to consider a notice account, right?
The interest rates are still rubbish
Average interest rates may have hit a two-year high, but they are still pretty rubbish. The average rate your money will enjoy in a notice savings account is a paltry 0.91%, compared to 0.88% a year ago.
[SPOTLIGHT]That isn’t exactly a return to set the heart racing.
Even when you look at best buys, the rates aren’t that exciting. At the moment, the Secure Trust 120 Day Notice account pays 1.86% on balances of at least £1,000. If you only want to lock your cash up for 95 days, then both Charter Savings Bank and Shawbrook Bank pay 1.65% on balances of at least £1,000.
The whole point of a notice account is that you get a better return than if you have instant access to your cash. But really, you aren’t getting much benefit at the moment – the top easy access account from the new RCI Bank pays 1.50% on balances from £100.
What’s more, there are quite a few places that require little or no notice when accessing your cash that offer a far better return.
Current accounts
For some time now current accounts have offered vastly better interest rates than traditional savings accounts. What’s more, you can access your cash whenever you want!
For example, there’s Nationwide’s FlexDirect Account, which pays 5% on balances up to £2,500 for the first year. It also boasts a 12-month 0% overdraft, though you will need to pay in £1,000 a month to qualify.
Or there’s TSB’s Classic Plus Account, which also pays 5%. While it has a smaller limit of £2,000, the good news is that the interest rate doesn’t drop off after a year. To qualify you’ll need to pay in £500 a month, register for internet banking and paperless correspondence.
You can get 4% from Lloyds Bank’s Club Lloyds account on balances between £4,000 and £5,000 so long as you pay in £1,500 a month and set up two direct debits.
For even bigger balances, the best account of all is the Santander 123 current account. It pays 3% on balances between £3,000 and £20,000, and what’s more you earn cashback on certain direct debits paid from the account. There is a £2 monthly fee to consider though.
All of these accounts offer a much healthier rate of interest than a rubbish notice account, and you can get your hands on your cash whenever you want!
Compare current accounts with loveMONEY
Peer-to-peer
Peer-to-peer investing has grown significantly in popularity in recent years, as savers turn to alternative ways to get a returns on their cash. With a peer-to-peer site, you lend your money directly to individuals or businesses and get a juicy return on that cash. While it’s riskier than putting your cash into the bank, most peer-to-peer sites have funds set up to cover you in case your borrowers start to struggle with repayments.
Most peer-to-peer deals last a couple of years, though there is the option to sell on your loan to another lender. However, a couple of peer-to-peer sites offer even more flexible options which present another rival to naff notice accounts.
For example, RateSetter offers a one-month term too. You money is lent out for a month, and at the end of the month you can roll that cash over into another month of lending or else withdraw your funds. The rate of interest on offer is a cracking 2.9%.
Alternatively, Landbay offers a tracker rate which follows the Bank of England Base Rate plus 3%, giving you a current rate of 3.5%. Landbay says that you can redeem your loan at any time and at no cost, so long as it can reallocate the loan to new lenders, something it claims only takes a few days with its tracker rate loans.
With both of these examples, it’s important to remember that the interest being paid is gross. That means you will need to declare it and then pay tax on it via a tax return. But that's not much bother for an interest rate much higher than those on offer from mediocre notice accounts.
Compare peer-to-peer returns with loveMONEY
Cash ISAs
Finally, don't forget about Cash ISAs. The interest rates still aren't enough to get the heart pumping, but at least the returns are tax free. Right now you can get 2.02% with a 120-Day Notice ISA from Al Rayan Bank (minimum deposit of £250) or 1.60% from Hickley & Rugby Building Society, again with 120 days' notice, though this time with a minimum deposit of £500.
Or if you don't want to have to give notice at all, there's 1.50% on offer from the NS&I Direct ISA.
For more, read The best Cash ISAs for the 2015/16 tax year.