The fixed rate bonds with a cooling off period (great if a better deal comes along)
Savings rates are changing at pace and while higher interest is good news, customers may wonder whether they can close accounts and withdraw funds without penalty if the deal improves.
Savings rates continue to increase off the back of six successive Bank of England base rate rises since December 2021.
While this is good news for savers who have put up with paltry rates for years, it does mean that banks and building societies are chopping and changing their products at speed.
It is therefore challenging for savers looking to get the best deal on a fixed rate bond – tying up money for between one and five years – as they’re not sure whether to commit the cash in case the rate changes for the better.
Indeed, it can be frustrating when you assign your cash to a fixed rate product only to find the rate has increased for new customers just days later.
In June, this happened to reader Mike who opened Atom Bank’s one-year fixed saver paying 2.3% AER before the rate was upped to 2.4% then 2.6%.
Great that you’ve increased the rates but a shame it was just a couple of days after I took out the 2.3% one!
— Mike (@Umiamz) June 15, 2022
Atom Bank doesn’t have a cooling off period for fixed saver products, but customers who open an account and don’t deposit any funds will have the account automatically closed after 14 days. For Mike, he had already deposited money into the account so it is tied up for the year.
‘No automatic right to cancel’
Cooling off periods allow buyers a window of time where they can change their mind, cancel a contract and get their money back, typically for goods and services.
According to Andrew Hagger of Moneycomms, there are no automatic rights to cancel with fixed rate savings products.
“If there were, it would be chaos at the moment as people would continuously cancel as they 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, “primarily because there is 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 consider them not to be a complex product where a cooling off period is needed.
“Also, from the bank’s perspective, if they offer one, then the funds aren’t available for them to use for 14 days because there’s always the risk that they will be withdrawn.”
Based on Savings Champion data on the providers which have featured in the best buy tables this week for their one-year, two-year, three-year, four-year and five-year bonds (AER), YourMoney.com contacted 12 banks and building societies to see if they offer a cooling off period for savers. Here’s what we found…
The fixed rate bonds which offer cooling off periods
Aldermore: It currently offers the top rates on its three-year bond (3.25%), four-year bond (3.3%) and five-year bond (3.5%). Savers require a £1,000 deposit.
“We offer a 14-day cooling off period on all of our Fixed Rate Savings products. The 14-day cooling off period provides an opportunity for the customer to cancel without penalty or notice if they change their mind about the product e.g. if their circumstances change.
“We guarantee to pay the interest rate shown on account opening provided a deposit is paid into the account within 14 calendar days of the account being opened. In addition, if the interest rate on the product has increased by the time the first deposit is received, a customer will automatically receive the higher rate.”
DF Capital: “We have a cooling off period. It’s 14 days from the date of account opening – we will also return any deposited funds that have been made in those 14 days. We have this because we believe it offers the best customer experience.”
JN Bank: It sits in fourth place in the best buy four-year fixed rate bond table offering 3.11% for savers with a minimum £1,000 deposit.
“Our JN Bank Fixed Term Saving accounts have a cooling off period within 14 days of account opening. We can confirm there are no penalties if you were to close the Fixed Term Saving account within the 14 day cooling off period.”
Kent Reliance: “Kent Reliance provide a 14-day cooling off period from the date the account is opened to reconsider your choice. If you change your mind within this cooling-off period, your initial deposit will be returned without any interest or penalty. If you have paid any cheques into the account, we can’t return the funds until the cheques have cleared. Please allow six clear working days.”
It 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 customer fails to deposit during this period, the account will automatically close.”
Monument: It comes in fifth place in the best buy table for five-year bonds, paying 3.3% (min £25,000 deposit).
“Monument confirms that fixed term deposits have a 14-day cooling off period. This is not a regulatory requirement. Monument has purposely chosen to incorporate this as a feature of our fixed term deposits as it provides our clients with added flexibility and comfort should things change following the date of account opening.
“Monument clients do not incur any penalties if they change their mind and close a fixed term deposit within 14 days following the account opening date.”
OakNorth Bank: It leads the two-year bond table paying 3.17% for those with savings of £1.
“There is a 14 calendar day cooling off period on all our products, which is the statutory minimum required under the Consumer Contracts Regulations. This is to give customers flexibility in case they change their mind.”
The Ts&Cs also state: “You have the right to cancel the agreement via email or phone and close your account, without penalty or notice, within 14 calendar days from the date of your initial account funding, or within 14 days of first receiving the specific terms and conditions (if later).”
No cooling off period but account closed if not funded
Charter Savings Bank: It comes in joint first place in the one-year fixed rate bond category, paying 2.85% on a minimum deposit of £1.
“There’s no cooling off period for new Fixed Bonds. The funds are fixed for the term. We provide customers with all the details beforehand on how the account operates to ensure customers are aware and we also offer alternative accounts that allow access at any time (Easy Access) which may be more suitable if the customer is not willing to lock funds away for the term.”
However, it 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 fails to deposit during this period, the account will automatically close.”
United Trust Bank: Joint second place for its two-year offering of 3.15% on deposits of £5,000 or more.
“Customers who open any of our fixed term bonds are given a 14-day funding window to fund the account. This begins immediately following account opening. If they do not fund the account in that time, they lose the opportunity to secure that rate.
“Once the account has been fully funded or following 14 days (if part-funded), the bond term starts and the balance cannot be withdrawn until the maturity date, aside from in exceptional circumstances.
“We offer competitive interest rates on our fixed term bonds, and these are usually limited time offers and are withdrawn from the market once we attract the funding we require. We are able to offer a competitive return on these products on the understanding that our customers stay invested with us for the duration of the bond term and therefore do not have access to their funds, whether that’s to switch to another bond or bonds or for any other purpose.
“This is a common feature of the fixed term bonds available in the market, and we make sure customers are aware of this from outset so they can make informed decisions when choosing a home for their savings.”
Zopa: It just makes it into the best buy tables for the four-year fixed rate bond paying 3.05% on £1,000 of savings.
“Customers can open as many fixed term accounts as they like, so if they haven’t funded yet and rates go up they can always open another account and fund that instead.
“We have thought about offering a cooling off period. However, it technically wouldn’t be a fixed term product until the cooling off period starts, which would impact things like the treasury treatment of the funds.
“This way it is easier. As soon as the customer puts money in it is for a fixed term on a fixed rate.”
YourMoney.com also contacted Buckinghamshire Building Society, Close Brothers Savings and Shawbrook but had not heard back by the time of publication.
What about fixed rate ISAs?
ISA regulations permit fixed rate ISA bond account holders to access their funds at any time during the fixed term. But typically 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) don’t require a cooling off period but the rules are different for notice ISAs and fixed ISAs.
“Virtually every provider gets round this by having heavy penalties for access e.g. a one year fixed rate ISA will have a penalty charge of 90 – 180 days’ interest to get immediate access (so you could get back less than you put in if you request access after a short period). On a five year fixed deal it is not uncommon to see one year’s interest being charged as penalty access.”