What Is a Notice Account and How Does It Work?

A notice account is a type of savings account designed for individuals who want to earn a potentially higher interest rate than traditional savings accounts, while still maintaining a degree of access to their funds. These accounts introduce a specific requirement: account holders must provide advance notification to their financial institution before making a withdrawal. This structure offers a middle ground between highly liquid, low-interest accounts and less accessible, higher-yielding investment vehicles.

Defining a Notice Account

A notice account is distinguished by its requirement for a pre-specified “notice period” before funds can be withdrawn. This period can vary significantly, ranging from as short as 7 days to as long as 180 days, with 30, 60, or 90 days being common durations. The account holder selects this notice period when opening the account, and it dictates the waiting time for accessing funds. In exchange for this limited access, notice accounts often provide more competitive interest rates compared to standard instant-access savings accounts.

Operational Aspects of Notice Accounts

Interest on these accounts is generally calculated daily and can be paid monthly or annually, depending on the account terms. The interest earned on these accounts is considered taxable income at the federal level and must be reported to the Internal Revenue Service (IRS). Financial institutions typically issue a Form 1099-INT if interest earned is $10 or more in a year, though all interest, regardless of amount, is taxable.

To make a withdrawal, the account holder must formally notify the bank of their intention to access funds, specifying the amount. The agreed-upon notice period then begins, and the funds become available only after this period has elapsed. For example, a 60-day notice account means a withdrawal requested today will be available in 60 days. Should funds be needed before the notice period expires, account holders may face penalties, often in the form of forfeited interest on the withdrawn amount. Some notice accounts may also have minimum balance requirements to open or to earn the stated interest rate, or maximum deposit limits.

Comparing Notice Accounts

Notice accounts occupy a unique position within the spectrum of savings products, differing from both instant-access savings accounts and fixed-term deposits. Instant-access or easy-access savings accounts offer immediate liquidity, allowing withdrawals at any time without a notice period. However, this convenience typically comes with a lower interest rate compared to notice accounts, representing a trade-off between accessibility and earning potential.

Fixed-term deposits, such as Certificates of Deposit (CDs), also offer potentially higher interest rates but lock funds for a predetermined duration, such as one or five years. Unlike notice accounts, fixed-term deposits usually do not allow withdrawals until the maturity date, or they impose substantial penalties for early access. Notice accounts offer greater flexibility than fixed-term products because the funds become accessible after the notice period, regardless of how long the money has been in the account. This makes them suitable for savers who can plan their withdrawals but do not want to commit to a rigid, multi-year lock-up period.