If you are looking for a place to lock-in your savings yet remain unsure whether to choose between the security of a term deposit or the flexibility of a savings account, you may consider opting for a hybrid of the two - notice saver accounts.
Notice saver accounts offer the flexibility to either keep your savings locked away like a term deposit, or access your savings without penalties once a period of 'notice' has passed.
How do notice saver accounts work?
Banks providing notice saver accounts for personal use will typically offer notice periods of either 31 days, 60 days or 90 days. This means that if you require your funds in your savings account, you need to provide the bank with adequate notice before they are released to you.
Generally the longer the notice period, the higher the interest rate you are receiving on your notice saver account. You usually don't need to lock away all your savings either - usually you can lock a portion and keep the rest 'at call'.
Example
Let's say you have stored some savings in a notice saver account with the intent to use that money on an overseas holiday booked in 60 days' time. At the time you opened the account, you chose a notice period of 60 days. This means in order to unlock your savings for use on your holiday, you will need to tell the bank 60 days in advance.
What to look for when comparing notice saver accounts
Notice saver accounts offer unique features when compared to at-call savings accounts, making them an appealing option for those who crave the security of a term deposit yet the flexibility of a savings account.
Factors to consider before choosing a notice saver account include:
Notice term
The most notable factor outside of interest rates when considering a notice saver account is the notice term. This determines the length of time required to provide notice to access your savings.
As mentioned above, many banks typically offer three notice period lengths - 31 days, 60 days or 90 days. However these can differ depending on the bank. For example Rabobank currently offers all three notice day options, while BOQ Specialist offers a 32-day notice period.
Interest rate
The longer the notice term, generally the greater the interest rate. This can be beneficial for those who may be looking towards saving for a particular goal later on in the year as opposed to having savings readily available every 31 days.
How interest is calculated
Alongside interest rate, it's important to factor in how interest is calculated when comparing notice saver accounts. With the eighth wonder of the world being compound interest at your disposal, interest calculated daily is of most benefit to achieve your savings goals.
Interest that is calculated daily has the opportunity to work more for your benefit as it takes into account the principal and the interest that's already been earned. This is the major difference with term deposits - interest on TD products is usually not compounded.
To help determine the interest you could potentially earn with your savings on a notice saver account, be sure to check out InfoChoice's savings calculator.
Adding to your balance
One of the main downsides to term deposits is that they don't allow you to boost your savings balance once the initial deposit is in. With notice saver accounts, you can usually add as much as you like, which helps your savings to grow even more.
Most saving accounts, including notice savers, require a transaction account to be linked so money can be transferred between the two. Depending on the structure of the account and the flexibility of the bank, some will let you use your existing account even if it's with another provider, however most will prefer you to open a transaction account with them in order to link it to the notice saver account.
Notice saver account pros and cons
Pros
- Competitive interest rates: Notice saver accounts allow you to earn interest on your money while you're not using it.
- Add more to your notice saver balance: A key feature of notice saver accounts compared to term deposits is that you can add money to your principal amount.
- Flexibility: Notice saver accounts have more flexibility than a term deposit. This means if you want to move the money to another account with a higher interest rate then you don't have to wait any more than 90 days. However it's important to remember to meet your notice terms if looking to take your money out.
Cons
- Locked in: Compared to the flexibility of an at-call savings account, you remain locked in with a notice saver account. If you need your money in a hurry you still have to wait a minimum of 31 days, unless you are willing to accept penalty fees or even forfeit interest if you require your savings immediately.
- Variable interest rates: The interest rates for notice saver accounts are variable. This means unlike term deposits, which have a fixed interest rate for the entire term, a variable rate is subject to movement in the cash rate set by the Reserve Bank of Australia.
- Not a popular product: Not all, or even very many banks, offer notice savings accounts. For some that do, the interest rate boosts might hardly seem worth it. This is why it's important to compare to make sure you're getting the most bang for your buck.
- You might still need to meet bonus criteria: Many savings accounts require regular minimum deposits and other criteria. Even if your money is locked away you'll likely still need to meet these guidelines. Term deposits, other than a minimum initial deposit, do not have any hoops.
