Instant, or 'easy', access savings accounts often come with worse penalties for withdrawals than those with notice periods.
Instant access savings accounts are often great. Many offer an attractive combination of easy access and high interest rates.
With these accounts, you can usually transfer your money to a current account within about three days (if your savings and current accounts are from the same provider you can often do it in seconds). I'm not going to quibble about whether a few days counts as 'instant', because I think three days is fast enough for most people.
The problem is that many accounts sold as instant access have penalties for making withdrawals.
Typically, with these sneaky accounts, you'll lose all the interest you would have earned in any month you make a withdrawal. For £5,000 of savings in a top savings account paying around 6% AER, if you save all year and withdraw £1 in the 12th month, you might lose around £20 after tax (£15 for higher-rate taxpayers). Effectively, this reduces your interest rate by around 0.5% AER, leaving you significantly off the top accounts. If you make more withdrawals in other months, you'll be way off the top rate.
Now, let's compare this with a typical penalty for a 30-day notice account. With these, you might be able to access your money in three to 14 days at the cost of 30-days interest. However, usually the loss of interest is on the amount withdrawn, not your entire savings as with many instant-access accounts. This means that you might get penalised less with a well-chosen 30-day notice savings account!
Top Ten Instant (or Easy) Access Accounts
Savings account | Interest rate | Minimum/maximum deposit | Penalty for withdrawal |
|---|---|---|---|
6.41% AER (includes a six-month bonus) |
£1/ | No interest paid in | |
6.41% AER |
£1/ | No penalty | |
Scarborough BS Direct Exclusive Saver | 6.4% AER |
£1,000/ | No penalty |
Stroud & Swindon Branch Premier | 6.35% AER |
£100/ | Fourth and later |
West Bromwich BS | 6.32% AER |
£1,000/ | No penalty, but just |
Northern Rock Tracker Online | 6.31% AER |
£1/ | No penalty |
Alliance & Leicester DirectSaver | 6.30% AER |
£1,000/ | No interest paid in |
6.30% AER |
£250/ | No penalty | |
AA Internet Access | 6.30% AER |
£500/ | No penalty |
6.30% AER |
£1/ | No penalty |
The table excludes accounts for over 50s/60s only, and where a provider has more than one account it includes the provider's best one only. Data from Moneyfacts and from the Moneysupermarkt website.
So, note the 'Penalty for withdrawal' column, as that's what the table's for. You'll see that four out of ten accounts have penalties for making withdrawals.
Birmingham Midshires' is actually a good account on the whole, despite the penalty, provided you don't intend to make many withdrawals each year. Its rate is good, although it has no guarantees.
Compare it with ICICI Bank, which has an excellent guarantee (see our savings table for more information). Its teething problems with customer service seem to have been fixed, although I think its online sign-up procedure could do with improvement. It has no withdrawal penalties, making it a true instant-access account.
My favourite remains the Icesave account, as it continues to get good feedback, and has a good interest rate and guarantee (more info in our savings table). And, of course, it has no withdrawal penalty!
> Compare savings accounts through The Fool.