COMMENT
Instant Access vs Notice Accounts

By Jane Mack (TMFJane)
December 20, 2005

If you were to name the most basic and straightforward financial product you could think of, you'd probably cite the savings account. After all, you put your money in, earn interest on it and take it out when you need to, don't you?

With an instant access savings account you'd probably be right although even then you have to watch that the account doesn't have any restrictions such as a limit on the amount you can save in it each year or the number of withdrawals you can make without penalty.

Notice accounts are another case in point. According to market researchers, Mintel, notice accounts are still very popular with the over 55s even though they've long since lost their reputation for paying the best interest rates.

Typical notice periods are 30, 60 and 90 days although some are as short as 7 days and others as long as six months. If you don't give sufficient notice then you're likely to pay a penalty equal to the interest payable during the notice period.

Some accounts will allow you a limited number of penalty-free withdrawals per year -- perhaps two or three -- but you usually have to keep a minimum amount in your account in order to take advantage of them. Others will reward you with an annual bonus if you don't make any withdrawals over the year and, of course, there's the usual ploy of offering an introductory headline rate which drops after a few months.

The trick when comparing any savings account is to look at the Annual Equivalent Rate (AER) as this represents a truer picture of the ongoing rate than the headline rate does. It'll tell you immediately whether the account is paying an introductory bonus that lasts for less than a year as the AER will be lower than the gross headline rate.

There'll also be the tell-tale asterisk that alerts you to the small print where it'll say the higher rate is only available for six months or that the rate is only available to people who make no more than 2 withdrawals over the year etc.

Check that the account really is an easy access account, i.e. you can get at your money at any time without paying any penalties at all. Remember that if it's a postal account only, it's a restriction in that you have to rely on the vagaries of the Royal Mail to get at your money. And branch-based accounts mean you have to visit in person to make withdrawals.

The true instant access accounts are those operating via the telephone or internet where you can transfer funds to your current account immediately and many of them offer better rates of interest anyway. And, of course, by having easy access to your money you can switch your money to higher paying accounts whenever you choose.

> Pick up a better Savings Account.