There?s something (relatively) new out there for term deposit investors. Several Australian banks are offering Notice Saver accounts.
What is a notice saving account?
Notice saver accounts are similar to term deposits. How it works is that you deposit your money with a financial institution and get access to that money not at call, or at the end of a fixed term, but by giving a certain period notice –which is usually at least 31 days. If you don?t give notice, the money stays invested earning the notice saver interest rate.
While the number of accounts on offer in Australia is not currently large, it is likely that this will change in the medium future, thanks to APRA?s new Liquidity Coverage Ratio. This makes it more attractive for financial institutions to hold deposits which are there for at least 30 days (and therefore not at-call). There may be a push to encourage savers to ditch their at-call account and head for a Notice Saver account instead.
So – what are some pros and cons of Notice Saver accounts?
Benefits of notice saver accounts:
- One of the great things about notice saver accounts is that you?re not faced with having to make investment decisions at the end of a term – the money will simply stay there until you provide notice.
- You can add to your notice saver whenever you want. That means that instead of waiting until you have a decent sum of cash to invest in a term deposit, you top your notice saver investment up every time you have small sums of spare cash. This can help with cash management.
- Because of the greater benefit to financial institutions in holding money that is not at-call, institutions may offer a higher rate of interest in comparison to at-call accounts.
- Your money is out of reach as it would be with a term deposit and you can?t spend it.
- It?s a bridge between a fully locked term deposit and an on call account.
Disadvantages of notice saver accounts
- It?s easy to become complacent and fail to check that the interest rate is competitive.
- The interest rate can change. Notice saver interest rates can go up or down whenever the bank chooses, whereas term deposit rates are fixed. If there is a major shift in interest rates this will affect you pretty soon.
- You may end up leaving your money in for a number of years and it would have been better to take a higher interest rate term deposit for a longer fixed period. This of course can affect you if you?re investing in term deposits.
We expect to see more Notice Saver accounts on offer in Australia over time. So watch this space.