When it comes to trust accounts, there are a number of different options available. The type of trust savings account that a trustee chooses can affect the flexibility, interest earned and how funds are managed. Trust funds often have legal and financial responsibilities attached that the trustees will need to take into consideration. It is also important to remember that choosing the wrong account type can affect both the ability to make distributions and the amount of interest that is earned.
Interest rates are another important factor as these can fluctuate and only some accounts will protect against drops. The interest rates of all the account types will be influenced by wider market conditions, which means that they may change over time. Some providers will offer incentives such as bonus interest for maintaining a minimum balance or linking accounts. Trustees should weigh these features alongside the level of access required, as managing multiple accounts may increase administrative effort but could also help to balance flexibility and returns.
Trustees should understand the main options available before they begin setting up an account.
In this article, we will look at fixed rate, notice and easy access trust accounts to help you understand what each one offers and find the best one for your circumstances.
This article is for general information purposes only and does not constitute legal or financial advice.
A fixed rate trust account is an account where the interest rate is set and guaranteed for a fixed term. The trustees deposit funds for a defined period, which is usually one, two or five years, and interest is credited according to the agreed rate. The longer the term, the higher the rates tend to be. However, it is important to remember that this requires a much greater level of commitment.
The rate is usually guaranteed for the whole term; however, early withdrawals can often incur penalties or reduce the interest. Some accounts may allow partial withdrawals without penalties under specific conditions.
This type of account is useful for funds that do not need to be accessed during the fixed term and can therefore be locked away. They are particularly useful for long term growth rather than short term needs.
An easy access trust account allows funds to be withdrawn at any time without notice. With this type of account, there is no fixed term, and the interest is usually variable, meaning that it may change in line with market rates.
As the interest rate is flexible, it is typically lower than the rates offered by fixed rate accounts, but the account provides maximum levels of flexibility. Interest rates on easy access accounts can fluctuate with market conditions, which means that any returns may increase if the rates rise, but decrease should they fall. These accounts are particularly useful for trusts that need immediate access to funds for unplanned expenses or for trusts with smaller or irregular deposits.
Fixed rate trust accounts are most suitable for trustees that need funds to be available for regular or unpredictable payments.
An account where the trustee needs to give notice before withdrawing funds is known as a notice trust account. They are usually required to give 30, 60, 90 or 180 days’ notice before funds can be accessed. This requires trustees to anticipate when the funds will be needed in order to give the right amount of notice.
Notice trust accounts offer higher rates of interest than easy access accounts, but still provide some levels of flexibility when it comes to accessing the funds. However, if notice has not been given, then withdrawals can be delayed and in some cases, penalties may even be applied. Notice accounts are a good way to provide a balance between earning higher interest rates and having moderate access to the available funds. If you miss the notice period, there is a risk of delayed payments or even forfeited interest.
The biggest advantage of a fixed rate account are the predictable returns that it offers. As you know what the interest rate is going to be and how long it will be applied for, it is much easier to forecast how successful the fund is likely to be. It also offers protection from interest rate drops, meaning that you can be sure of the amount of interest that will be earned for the duration of the term. As the funds are locked away for a set amount of time, but with a fixed rate account, it is useful for those who have no immediate access needs.
With an easy access account, you have the greatest level of flexibility available to you. You can enjoy immediate access and there will be no penalties for any withdrawals that are made. This makes the account particularly useful for any unpredictable expenses.
Notice accounts have moderate levels of flexibility, which means funds can still be accessed but there is still a sense of security. These accounts also offer higher interest rates than the easy access accounts, meaning that there are greater returns available. Notice accounts are also more flexible than fixed rate accounts as the funds can still be accessed as long as notice has been given, which makes them ideal for those who can plan their withdrawals.
The biggest disadvantage with a fixed rate account is that the funds are locked away until the end of the term. This means you will not be able to access them for anything up to five years. As the interest rate is agreed at the start of the term, you can protect yourself from any drops in interest rates, but this also means that you risk missing out if the interest rates rise, as you will not be able to capitalise on this.
As easy access accounts need to provide significant levels of flexibility, they generally offer lower interest rates. This means that your money will not be working particularly hard for you and your returns will be minimised. Easy access accounts are subject to changes in the interest rates, which means you will have variable returns that can fluctuate over time and make financial planning more difficult.
Whilst your funds are available to you in a notice account, there will be delays in accessing it. As you need to give notice in order to withdraw your funds, this account is not ideal for those who need immediate access to their money. It is possible that penalties will be applied for early withdrawal of funds and so significant planning needs to be made in order for the account to align with any expected needs.
When choosing the right account, there are a number of factors that need to be considered. The first thing you need to think about is what you think your access needs will be for your trust funds. You need to decide whether you will need to be able to withdraw your funds in a hurry or if you are happy to leave them untouched for a set amount of time.
You also need to decide on whether you prioritise interest rates or flexibility, as most accounts do not offer both. The size and number of deposits that you want to make may also determine what account you go for, as well the number of beneficiaries and the expected payments or distributions.
In addition to access and interest rate priorities, trustees may also want to consider whether their provider offers incentives such as bonus interest or linked account benefits. Market conditions can have a significant impact on returns, so reviewing accounts regularly and even splitting funds across different types may help to balance predictable growth with the flexibility that is needed for distributions.
When deciding, trustees should also consider the time horizon for any planned distributions and whether funds have been earmarked for short-term or long-term purposes. The interest rate risk is an important factor as fixed rate accounts will protect against falling rates but cannot take advantage of those that are on the rise. Trustees may choose to review accounts regularly and consider moving funds when terms expire to ensure the trust continues to meet its financial objectives.
Disclaimer: This article is for information purposes only and does not constitute legal or financial advice. Mansfield Building Society does not provide advice on the suitability of Charity savings accounts. Please consult a qualified professional to ensure any trust account meets the needs of your trust and its beneficiaries.
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