Fixed-rate bonds with a cooling-off period (ideal if a better offer comes along)
Savings rates are changing rapidly and while higher interest rates are good news, customers may wonder if they can close accounts and withdraw funds without penalty if the transaction improves.
Savings rates continue to rise following six successive Bank of England base rate hikes since December 2021.
While this is good news for savers who have endured paltry rates for years, it does mean banks and building societies are rapidly cutting and changing their products.
This makes it difficult for savers looking to get the best deal on a fixed-rate bond – tying up cash for one to five years – because they don’t know whether to commit the money in case the rate would change for the better.
Indeed, it can be frustrating to allocate your money to a fixed rate product only to find that the rate has increased for new customers a few days later.
In June, it happened to reader Mike who opened Atom Bank’s one-year fixed saver paying 2.3% AER before the rate was raised to 2.4% and then 2.6%.
It’s good that you raised the rates, but too bad it’s only a few days after I withdrew the 2.3% one!
— Mike (@Umiamz) June 15, 2022
Atom Bank does not have a cooling-off period for fixed savings products, but customers who open an account and do not deposit any funds will have the account automatically closed after 14 days. For Mike, he had already deposited money into the account, so he is locked in for the year.
“No automatic right of cancellation”
Cooling off periods provide buyers with a window of time where they can change their minds, cancel a contract, and get their money back, usually for goods and services.
According to Moneycomms’ Andrew Hagger, there is no automatic right of cancellation with fixed rate savings products.
“If there was, it would be chaos right now as people would continually cancel because they would find a higher rate a few days later,” he says.
Meanwhile, James Blower, founder of The Savings Guru, says there are very few savings providers that have cooling-off periods, “mainly because there’s no regulatory requirement to offer them on savings products.
Blower says: “They are bought by savers without advice and the regulator, the Financial Conduct Authority, does not regard them as a complex product requiring a cooling off period.
“Also, from the bank’s point of view, if they offer one, the funds are not available to them for 14 days because there is always the risk that they will be withdrawn.”
Based on data from Savings Champion on which providers made the Best Buys charts this week for their one-year, two-year, three-year, four-year and five-year (AER) bonds, YourMoney.com contacted 12 banks and building societies to see if they offered a cooling-off period for savers. Here’s what we found…
Fixed-rate bonds that offer cooling-off periods
Aldermore: It currently offers the highest rates on its three-year bonds (3.25%), four-year bonds (3.3%) and five-year bonds (3.5%). Savers require a deposit of £1000.
“We offer a cooling off period of 14 days on all our fixed rate savings products. The 14-day cooling-off period gives the customer the option to cancel without penalty or notice if they change their mind about the product, for example if their circumstances change.
“We guarantee payment of the interest rate stated at account opening provided that a deposit is paid into the account within 14 calendar days of account opening. Additionally, if the interest rate on product has increased by the time the first deposit is received, a client will automatically receive the higher rate.
DF Capital: “We have a period of reflection. This is 14 days from the date the account is opened – we will also refund any funds deposited that have been made within these 14 days. We have it because we believe it provides the best customer experience.
JN Bank: It ranks fourth in the best buy four-year fixed rate bond table offering 3.11% to savers with a minimum deposit of £1,000.
“Our JN Bank fixed term savings accounts have a cooling off period within 14 days of opening the account. We can confirm that there are no penalties if you close the savings account term within the cooling-off period of 14 days.
Kent Reliance: “Kent Reliance offers a cooling off period of 14 days from the date of account opening to reconsider your choice. If you change your mind during this cooling off period, your original deposit will be returned to you without interest or penalty If you have posted checks to the account, we cannot return the funds until the checks have cleared, please allow six clear business days.
He also adds: “Once the account is opened, and provided the product has not been closed to new deposits, you have a limited period in which you can make deposits into the account. If a client fails to make a deposit during this period, the account will be automatically closed. »
Monument: It comes in fifth place in the best buys table for five-year bonds, paying 3.3% (minimum deposit £25,000).
“Monument confirms that term deposits have a cooling-off period of 14 days. This is not a regulatory requirement. Monument has deliberately chosen to incorporate this as a feature of our term deposits, as it provides our customers with additional flexibility and comfort should things change after the account opening date.
“Monument customers incur no penalty if they change their mind and close a term deposit within 14 days of the account opening date.”
Oak North Bank: It tops the two-year bond chart paying 3.17% for those with £1 savings.
“There is a cooling-off period of 14 calendar days on all our products, which is the legal minimum required under the Consumer Contracts Regulations. This is to give customers flexibility in case they change of opinion.
The terms and conditions also state: “You have the right to cancel the agreement by email or telephone and close your account, without penalty or notice, within 14 calendar days from the date of initial funding of your account, or within 14 days of first receiving the specific terms and conditions (if later).
No withdrawal period but account closed if not funded
Chartered Savings Bank: It tops the 1-year fixed rate bond category, paying 2.85% on a minimum deposit of £1.
“There is no cooling-off period for the new fixed bonds. Funds are fixed for the term. We provide clients with full details of how the account works in advance to ensure clients are aware and we also offer alternative accounts which allow access at any time (Easy Access) which may be more appropriate if the client is unwilling to lock funds for the term.”
However, he adds: “Once the account is opened, and provided the product has not been closed to new deposits, you have a limited period in which you can make deposits into the account. If a customer does not fails to make a deposit during this period, the account will be automatically closed.”
United Trust Bank: Joint second place for its offer of 3.15% over two years on deposits of £5,000 or more.
“Clients who open one of our Fixed Term Bonds have a 14-day funding window to fund the account. This begins immediately after account opening. If they do not fund the account within that time , they lose the possibility of obtaining this rate.
“Once the account has been fully funded or after 14 days (in the case of partial funding), the term of the obligation begins and the balance cannot be withdrawn before the maturity date, except in exceptional circumstances.
“We offer competitive interest rates on our fixed-term bonds, and these are generally limited-duration offerings that are taken off the market once we attract the funding we need. We are able to offer a competitive return on these products on the understanding that our clients remain invested with us for the duration of the bond and therefore do not have access to their funds, either to switch to one or more other obligations or for any other purpose.
“This is a common feature of fixed-term bonds available in the market, and we make sure customers are aware of this from the outset so they can make informed decisions when choosing a home for their saving.”
Zopa: It is simply one of the best buy charts for the four-year fixed rate bond paying 3.05% on £1,000 in savings.
“Clients can open as many term accounts as they want, so if they haven’t funded yet and rates go up, they can always open another account and fund it instead.
“We thought of offering a period of reflection. However, technically it would not be a fixed-term product until the cooling-off period begins, which would impact things like the cash treatment of funds.
“That way, it’s easier. As soon as the client puts money into it, it is for a fixed term at a fixed rate.
YourMoney.com also contacted the Buckinghamshire Building Society, Close Brothers Savings and Shawbrook, but had not heard back at the time of publication.
What about fixed rate ISAs?
ISA regulations allow holders of fixed rate ISA bond accounts to access their funds at any time during the fixed term. But usually early access or withdrawal is subject to a penalty or loss of interest.
Blower says, “Fixed rate bonds and general savings products (e.g. regular saver, notice accounts, etc.) do not require a cooling-off period, but the rules are different for notice ISAs and Fixed ISAs.
“Virtually all providers get around this by imposing hefty penalties for access, for example a one year fixed rate ISA will have a penalty of 90-180 days interest for gaining immediate access (so you might get back less than you put in if you request access after a short time.) On a fixed five-year contract, it is not uncommon to see one year of interest charged as an access penalty.