Avoid these rubbish savings accounts

We look at what's hot - and what's not - in the world of accessible savings accounts.

If you're looking for a decent rate of interest on your savings - combined with a certain amount of flexibility - you may be considering a notice account.

Here, I'm going to compare the top notice accounts on offer with their instant access alternatives. I'm also going to explain why at the moment, opening a notice account simply doesn't make financial sense.

What are notice accounts?

In a nutshell, notice accounts are savings accounts which ask you to give a period of notice before you withdraw your cash. The period set is typically either 30, 60 or 90 days, but very rarely you'll find it can be as little as a week or as much as 120 days.

Many notice accounts do let you withdraw money without observing the notice periods set - but you will have to pay a financial penalty for doing this (usually the amount of interest that you would have been paid during the notice period).

Some will also limit the amount of times per year you can withdraw cash (or confine withdrawals to certain months of the year). And sometimes, you'll need to maintain a certain amount of cash in your account to reap the full interest benefits.

In terms of flexibility, notice accounts therefore fall between instant access savings accounts (which let you access your money at any time, penalty-free) and bonds (which usually don't let you access your cash at all until the term of the bond is up).

The notice periods on these accounts offer banks and building societies the security of knowing your money is unlikely to be whipped away from them tomorrow.

As a consequence, the interest rates offered on notice accounts have traditionally been higher on than those on instant access accounts. In fact, that's the main reason customers opt for them over their easy access counterparts.

Things are changing

However - it looks like that's all changing. In my analysis, I'm going to focus on accounts that require a minimum deposit of £1,000 or less.

So, here are the five notice accounts paying the top rates of interest in their category:

And here are the five market-leading instant access accounts:

Notice versus instant access - the verdict

Research by data provider Moneyfacts suggests that 30% of consumers are currently looking for easy access savings accounts.

And as you can see, the interest rates offered by the top easy access accounts now actually beat those available from their notice account equivalents.

Let's have a look at the results in a bit more detail. The top two instant access accounts mentioned (from Coventry BS and Egg) both offer a better rate of interest than any of the notice accounts outlined.

With the unusual combination of better rates and greater flexibility on offer, there currently seems to be no reason to opt for a notice account at all!

Easy access top picks

The top instant access spot is taken by the First Class Postal account, from Coventry Building Society; the 3.3% rate is the best within its savings category. However, this account has a number of restrictions you need to be aware of.

While you are allowed instant, penalty-free access to your cash, only four withdrawals are allowed each year - and the minimum you can withdraw at any time is £1,000. In addition, the account can only be operated by post; and you need a minimum deposit of £1,000 to kick things off.

If you want a great instant access rate without these annoying catches, the Egg Savings Account is your best bet. For a slightly lower rate (3.25% - so 0.05% less than the Coventry account), you get an account that can be accessed online, penalty-free, whenever you want. This account is also a good choice if you're starting small, as the minimum deposit is just £1.

Both these accounts come with substantial fixed 12 month bonus rates attached. At the end of this period, your rate will drop significantly, and you'll probably have to hunt for a new market-leading rate for your savings.

And also bear in mind that all the rates listed (for both the notice and instant access accounts) are variable, so theoretically they could change at any time.

Want an even higher rate of interest?

If you're prepared to lock your money away for a year or more, you could get a much better, fixed rate of interest by sidestepping both notice and instant access accounts and opting for either a regular savings account or a bond.

Read The best savings accounts for regular savers and The top 10 fixed rate bonds to find out more!

More: The top five places to stash your child's cash | Savings war hots up!

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