Business deposit accounts (or investment accounts) are a type of savings account that allow your business to earn interest on lump sums or regular amounts of money paid into the account. There may be a notice period you need to provide to make withdrawals. If you don't give the required notice you could be penalised, usually by a loss of interest.
Notice periods are typically seven, 30, 60 or 90 days, although some accounts stipulate other periods. As a general rule, the longer the notice period, the higher the interest rate.
No notice business deposit accounts (also known as instant or easy access accounts) are suitable if you want to avoid being penalised for making unscheduled withdrawals. However, higher rates of interest can be obtained on notice accounts, so if you can take a longer-term view of withdrawals, this may better for your business.
These accounts also tend to offer variable rates of interest, with the provider potentially changing the rate at any time (though they’ll notify you if they do). For this reason, these accounts are best suited to business owners who are prepared to keep a close eye on their funds to ensure they continue to receive optimum returns.
Make sure you understand exactly what the notice period is and what the withdrawal penalty is for early access to your funds.
Penalties usually come in the form of loss of interest. This will usually be for the same amount of time as the required notice period, but could be longer. So, if the penalty on the account is 60 days' loss of interest and you want to withdraw £1,000, the interest you would have earned on that amount for the 60 days prior to the withdrawal will be discounted, maybe more.
Interest rates may have a bonus element for a specified time. If this is the case, you'll need to keep an eye on the account to ensure you're getting a competitive interest rate when the bonus period ends. It's wise to set up a calendar reminder to ensure you compare rates when you get to that point
When comparing business deposit accounts, pay close attention to the notice period and any bonuses included, and be prepared to switch to a new deal if the variable rate of interest is reduced for any reason.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.